With the bloom of nanotechnology, carbon-derived nanomaterials have revolutionized the landscape of diverse sectors, especially with drug delivery therapeutics, biomedical and theranostic applications, owing to their inimitable characteristics such as high surface area, tunable electronic properties, and mechanical strength. Among the diverse carbon nanomaterials, carbon nanodots (CNDs; being a subset of the carbon nano-allotrope family) have carved a niche in the field of drug delivery as quintessential nanocarriers primarily defined by their remarkable fundamental physicochemical features, superior biological compatibility, easy synthetic pathways, and tailored surface attributes. Chemically functionalized CNDs have been successfully adapted into more polar derivatives, thereby overcoming major impediments when it comes to their application in biological media. It is a matter of fact that the inevitable consequence of extensive production and widespread application of carbon-derived nanomaterials is their consequential presence in the environment. Therefore, it becomes indispensable to critically assess the aspects related to their toxicity, biological distribution, and production feasibility for unleashing novel fixes for imminent issues. Although the scientific community has produced a vital amount of results in the realm of drug delivery systems along with their potential as vehicles for therapeutic drug loading, stabilization, and biodistribution employing CNDs so far, however, it is no wonder that this venture is still in its infancy until reaching its zenith. Thus, this current outlay of literature provides an in-depth discussion of the synthesis and functional aspects of CNDs, for improving therapeutic outcomes via CND-driven targeted delivery approaches. Further, this chapter also lays huge emphasis on the potential applications, challenges, and future avenues of CNDs for their effective clinical translation into the pharmaceutical settings.