N-terminally Fmoc-protected dipeptide, Fmoc-Val-Asp-OH, forms a transparent, stable hydrogel with a minimum gelation concentration of 0.2 % w/v. The gelation property of the hydrogel was investigated by using methods such as transmission electron microscopy, field-emission scanning electron microscopy, atomic force microscopy and Fourier transform infrared spectroscopy. The silver-ion-encapsulating hydrogel can efficiently and spontaneously produce fluorescent silver nanoclusters under sunlight at physiological pH (7.46) by using a green chemistry approach. Interestingly, in the absence of any conventional reducing agent but in the presence of sunlight, silver ions were reduced by the carboxylate group of a gelator peptide that contains an aspartic acid residue. These clusters were investigated by using UV/Vis spectroscopy, photoluminescence spectroscopy, high-resolution transmission electron microscopy (HR-TEM), atomic force microscopy (AFM) and X-ray diffraction (XRD) studies. Mass spectrometric analysis shows the presence of a few atoms in nanoclusters containing only Ag2. The reported fluorescent Ag nanoclusters show excellent optical properties, including a very narrow emission profile and large Stokes shift (>100 nm). The reported fluorescent Ag nanoclusters within hydrogel are very stable even after 6 months storage in the dark at 4 °C. The as-prepared hydrogel–nanocluster conjugate could have applications in antibacterial preparations, bioimaging and other purposes.