Carbon dots (CDs) have become a potential material for biosensing, drug delivery, and bioimaging because of their strong fluorescence, for which they are referred to as fluorescent carbon dots. CDs have drawn significant attention as a new class of carbonaceous nanomaterials with accelerating applications in varying different technologies. This attention is mainly based on a multitude of appealing properties of CDs, such as high hydrophilicity, biodegradability, biocompatibility, chemical stability, and ease of surface modification, together with their unique optic properties. In this review, CDs were classified and evaluated based on the difference in precursors and preparation methods. The synthetic methods of CDs were summarized, and their luminescence mechanism was analyzed. The applications of CDs in biosensing, drug delivery, energy, and bioimaging were also discussed. The issues and challenges of CDs were analyzed for their further development, with specific emphasis on the toxicity profiles or lack thereof, especially that of cytotoxicity and long-term genotoxicity developed secondary to nanotoxic effects, of carbon dot-based systems. Additional research in toxicity is sure to lead to improved baseline nanosafety statistics for CDs and will be a crucial determinant in the adoption of CDs into many fields across all scientific disciplines, as well as indirectly assist in the development of more efficient and cost-effective technologies. Suggestions for the development of the concepts contemplated herein were also provided, along with additional insight into the controversy concerning the phenomenon of emission and the upconverted photoluminescence.