Carbon quantum dots (CQDs) constitute one of the most important breakthroughs in biomedicine due to unique and highly beneficial characteristics that essentially include intrinsic fluorescence, high biocompatibility, cost-effective and scalable synthesis, water solubility, nanoscale size, low toxicity, and easy functional modification. Such features chaperone CQDs toward rather universal applicability in myriad biomedical domains where their performance has been proven across very diverse aspects. Especially, CQDs have been established as excellent nanocarriers for drug delivery applications, antimicrobial agents, carriers of therapeutic genes, and efficient photosensitizers used in photodynamic therapy. The diagnostic potential has been underlined by delivering successful results in applications of cellular and bacterial bioimaging with improved diagnostic precision. CQDs have further played an important role in advancing theragnostic nanomedicine that combines the therapeutic and diagnostic capabilities in one nanoparticle. Modifications, such as the functional group doping, improve specificity and efficiency more toward targeted biomedical applications. In this review, we try to look deeply into the significant role that CQDs play in the field of biomedicine and underline their transformational efficacy and specific potency in therapeutic as well as diagnostic applications.