Fractionated compounds and methanol extract of the sponge Haliclona cratera (Schmidt, 1862) were investigated for their antioxidant and anti-inflammatory activities. The extract was also analyzed for its cytotoxicity in RAW macrophages by MTT assay. Enzyme-linked immunosorbent assay was performed to check the inflammatory mediators’ levels (TNF-a, COX-2, IL-1ß, PGE2, IL-6). High-performance liquid chromatography–mass spectrometry was used for characterization of fractionated compounds. The extracts showed good bovine serum albumin denaturation inhibition and poor antioxidant activity. It was also observed that the sponge extract did not show good cell viability which indicated its cytotoxic nature. Hc_EA_2, Hc_CHCl3_7, Hc_EA_5, and Hc_CHCl3_6 showed best IL-1ß and IL-6 inhibition in the range of 14.10–61.91%. Hc_EA_2, Hc_EA_5, Hc_CHCl3_7 and Hc_CHCl3_6 inhibited TNF-a levels at 74.78, 80.45, 74.16 and 81.29%, respectively. Fractionated compounds reduced the levels of IL-1ß, IL-6, PGE2, TNF-a and NO considerably in rats subjected to carrageenan-induced inflammation. Three compounds were characterized as per MS data, namely Sphingosine with isopropyl terminus, 24-methyl-5~-cholesta-7,9(11),24(28) ~-trien-38-o1 and 24-vinyl-cholest-9-ene-3ß, 24-diol.