In the past two decades, nanotechnology has made great progress in generating novel materials with superior properties. Quantum dots (QDs) are an example of such materials. With unique optical properties, they have proven to be useful in a wide range of applications in life sciences, especially as a better alternative to overcome the shortcomings of conventional fluorophores. Current progress in the synthesis of biocompatible QDs allows for the possibility of producing a large variety of semiconductor nanocrystals in terms of size, surface functionality, bioconjugation, and targeting facilities. Strategies to enhance the water-dispersibility and biocompatibility of these nanoparticles have been developed, involving various encapsulation techniques and surface functionalization. The major obstacle in the clinical use of QDs remains their toxicity, and the systematic investigation on harmful effects of QDs both to humans and to the environment has become critical. Many examples of the experimental use of QDs prove their far-reaching potential for the study of intracellular processes at the molecular level, high resolution cellular imaging, and in vivo observation of cell trafficking. Biosensing methods based on QD bioconjugates proved to be successful in rapid detection of pathogens, and significant improvements are expected in early cancer diagnostic, non-conventional therapy of cancer and neurodegenerative diseases.