The present disclosure provides method and system for dynamically adapting privacy and security for IoT communication. The method determines allowance of pre-engagement communication between communicating local entity (CLE) and communicating remote entity (CRE) based on perception information formed for the CRE. The method determines session filters to be applied during pre-engagement communication to identify violations. Further, if interest level for the pre-engagement communication is greater than a predefined threshold, engagement communication is established between the CRE and CLE. During the engagement communication, engagement filters are determined and applied to identify any violations. Further, during the engagement communication, one or more privacy and security related events are identified and actions are also identified to handle the one or more privacy and security related events, for dynamically adapting privacy and security for IoT communication. The actions include terminating the engagement communication, updating perceptions, refining filters and continuing engagement communication.