Nanotechnology is the development of engineered devices at the atomic, molecular and macromolecular level in nanometer range. Nanoparticles have potential application in medical field including diagnostics and therapeutics. Nanotechnology devices are being developed for diagnosis of cancer and infectious diseases which can help in early detection of the disease. Advances in nanotechnology also proved beneficial in therapeutic field such as drug discovery, drug delivery and gene/protein delivery. Nanoparticles can be constructed by various methodology so that effect can be targeted at desired site. In this review, some of the applications of nanoparticles in medicine as diagnostics and therapeutics which can be employed safely at the clinical level have been described. On other hand, as the particles become generally smaller their likehood of causing harm to the lung increases. Therefore, there is a need to study safety of nanoparticles.