Nanomedicine is the manipulation of human biological systems at the molecular level using nanoscale or nanostructured materials. Because nanoscale materials interact effectively with biological systems, the use of nanodiagnostics and nanotherapeutics may overcome many intractable health challenges. A variety of nanoparticles have been designed with modifiable functional surfaces and bioactive cores. The engineering of nanoparticles can result in several advantageous therapeutic and diagnostic properties including enhanced permeation and retention in the circulatory system, specific delivery of drugs to target sites, highly-efficient gene transfection, and enhanced medical imaging. These nanoscale materials offer the opportunity to detect chronic diseases early and to monitor the therapeutic effects of nanoformulated drugs used in the clinic. Many of these novel nanoparticles contain both drug(s) and imaging agent(s) within an individual nanoparticle for simultaneous disease diagnosis and therapy. Further integration of therapeutic compounds with diagnostic agents into theranostic nanoparticles would be highly beneficial. However, the unique physiochemical properties that make nanomaterials attractive for therapy and diagnosis may be also associated with potential health hazards. Our research has demonstrated that the biological response to nanomaterials is related to many factors including exposure levels, systemic accumulation and excretion profiles, tissue and organ distribution, and the age of the test subject. Therefore, when engineering new nanomaterials for clinical use, researchers need to consider these factors to minimize toxicity of nanoparticles in these applications. We have fabricated and evaluated nanomaterials such as cationic amphiphilic polymers and metallofullerenes that demonstrate both high efficiency and low toxicity in gene therapy and/or chemotherapy. In this Account, we describe the development of theranostic nanomaterials with low toxicity and illustrate their potential use as novel nanomedicines in translational research.