Carbon dots (CDs), an emerging class of carbon-based fluorescent nanomaterials, have drawn significant attention due to their promising potential in numerous biological and biomedical applications in recent years. Their exceptional properties, such as high biocompatibility, tunable photoluminescence, facile synthesis, ease of functionalization, chemical stability, and low toxicity, make them appropriate for several biorelated fields. This review offers a comprehensive summary of recent advancements in developing and applying CDs in the biological field. Particular importance is focused on their versatile roles in bioimaging, biosensing, drug delivery, and phototherapy. Moreover, the review explores present-day challenges in translating CD-based technologies from laboratory research to clinical practice and also outlines future perspectives to overcome these challenges and effectively bridge the gap between research and clinical application.