The application of AI in the medical sector has really changed the whole aspect of accuracy in diagnoses, planning of treatments, and also in the management of patients. Through the gradual acceptance of AI systems in the process of making clinical decisions, such systems bring along hard-to-solve moral and legal questions as well. This chapter sheds light on these challenges in detail and also recognizes the controversies surrounding patient data privacy, informed consent, algorithmic bias, and the accountability issue in machine decision-making among others. Furthermore, it looks at the legal use of AI in medicine concentrating mainly on the areas of liability, regulatory oversight, and compliance with healthcare laws as the foremost problems. By taking a multidisciplinary route, the chapter points out the establishment of strong ethical norms and adaptable legal frameworks as the main need in the responsible use of AI in healthcare. The chapter also uses real-life scenarios and case studies to clarify the debate even more thereby allowing the public to see how these institutions and policymakers are resolving these issues. The readers are meant to get full coverage of the ethical and legal aspects that are very critical for the safe and just integration of AI into medical practices. This chapter mainly presents the following topics in this order: (1) AI Applications in Diagnosis and Treatment; (2) Challenges in Diagnosis and Treatment; (3) Case Studies on Ethical and Legal Challenges in AI-Based Diagnosis and Treatment; (4) Current Guidelines and Policies; (5) Societal Impacts of AI in Healthcare; (6) Patient Perspectives and Engagement and; (7) Conclusion and Future Directions.