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A novel nanowire-based acoustic sensor incorporating cilia-like nanowires made of magnetostrictive iron–gallium (Galfenol) alloy has been designed and fabricated using micromachining techniques. The sensor and its package design are analogous to the structural design and the transduction process of a human-ear cochlea. The sensor responds when nanowires shear against the fixed membrane, in response to the motion of the flexible membrane on interaction with the acoustic waves. This results in a change in the magnetic flux in the nanowires, which is converted into electrical voltage by a giant magnetoresistive (GMR) sensor. As the acoustic sensor is designed for underwater applications, packaging is a key issue for the effective working of this sensor. A good package should provide a suitably protective environment to the sensor, while allowing sound waves to reach the sensing element with a minimal attenuation. In this paper, design efforts aimed at producing this microelectromechanical (MEMS) bio-inspired acoustic transducer have been detailed along with the process sequence for its fabrication. Package materials including external enclosure and fluid medium have been identified based on their acoustic performance in water by conducting several experiments to compare their impedance and attenuation characteristics and moisture absorption properties.