In recent years, carbon dots (C-dots) have gained appreciable interest owing to their unique optical properties, including tunable fluorescence, stability against photobleaching and photoblinking, and strong fluorescence. Simple and low-cost hydrothermal and electrochemical approaches have been widely used in the preparation of biocompatible and high-quality C-dots. Various C-dots have been used for the quantitation of small analytes, mostly based on analyte induced fluorescence quenching. Depending on the nature of precursors, synthetic conditions (such as reaction temperature and time), and surface conjugation, multi-function C-dots can be prepared and used in diagnostics and therapeutics. Their strong fluorescence and photostability, enables use in cell imaging. Their biological activity from the surface residues and capability of generating reactive oxygen species, have allowed many C-dots to become candidates as antibacterial and anticancer reagents. After suitable conjugation, biocompatible and fluorescent C-dots can be used for diagnostics and therapeutics, thus, showing their great potential in the area of theranostics.