Silver nanoparticles (AgNPs) have gained much attention in biomedical research because of their antibacterial properties. However, they have also exhibited cytotoxicity toward certain mammalian cells. In order to improve therapeutic efficacy, the incorporation of gold (Au) and Ag into bimetallic Ag–Au NPs is a promising strategy, as it has the potential to increase biocompatibility and maintain antibacterial activity. Toward this end, we prepared a series of bimetallic Ag–Au NPs and studied them with X-ray absorption spectroscopy (XAS) in order to elucidate the correlation of atomic structure to their bioactivities. The addition of Au was found to drastically change the atomic structure of the Ag NPs; namely, the Ag core of the NPs was gradually replaced with Au, while Ag was found mostly on the surface. Next, NP antibacterial activity toward S. aureus and cytotoxicity toward NIH-3T3 fibroblast cells were assessed. It was found that the antibacterial activity of the bimetallic NPs was lower than pure Ag NPs and dependent on the Ag location within the NPs. On the other hand, the cytotoxicity of bimetallic NPs was much lower than the pure Ag NPs and dependent on the overall Au concentration. Using the structural information garnered from XAS, we were able to rationalize the bioactivity results of the NPs based on their atomic structure and provide guiding principles to design Au–Ag NPs with balanced antibacterial and cytotoxic activities. This work represents an important step toward engineering the atomic structure of bimetallic Au–Ag NPs for biomedical applications.