Nanoparticles (NPs) are considered a promising tool in both diagnosis and therapeutics. Theranostic NPs possess the combined properties of targeted imaging and drug delivery within a single entity. While the categorization of theranostic NPs is based on their structure and composition, the pharmacokinetics of NPs are significantly influenced by the physicochemical properties of theranostic NPs as well as the routes of administration. Consequently, altered pharmacokinetics modify the pharmacodynamic efficacy and toxicity of NPs. Although theranostic NPs hold great promise in nanomedicine and biomedical applications, a lack of understanding persists on the mechanisms of the biodistribution and adverse effects of NPs. To better understand the diagnostic and therapeutic functions of NPs, this review discusses the factors that influence the pharmacokinetics, pharmacodynamics and toxicology of theranostic NPs, along with several strategies for developing novel diagnostic and therapeutic modalities.