Mycotoxins are toxic metabolites raising serious health concerns for humans and animals worldwide. Contamination in milk may happen due to the secretion of mycotoxins by various pathogens such as filamentous fungi species. Different fungi such as Aspergillus, Fusarium, and Penicillium, secrete many of the mycotoxins depending upon the environmental conditions, such as moisture, temperature, and availability of nutrients. Mycotoxin aflatoxin B1 (AFB1), which is present in the fodder or forage of animals, converts into aflatoxin M1 (AFM1) through the process of biotransformation, causing milk contamination with AFM1. The toxicity of AFM1 is a major cause of worry as it can be found in milk and a variety of milk-related food products. Thus, developing simple, sensitive, affordable, and precise sensors for the detection of AFM1 level in dairy products is in high demand. An innovative way of developing sensors may be achieved by the use of nanomaterials for chemical detection method with available artificial intelligence. However, synthesis of carbon source-derived carbon-based nanomaterials such carbon quantum dots (CQDs) has presented a proven application for the ultrasensitive detection of AFM1. CQD-based sensors are called nano-biosensors, offering minimal use of chemical reagents. CQDs can be used to fabricate fluorescent, electrochemical, and anti-body-based immunosensors and other nano-biosensors by suitably combining them with machine learning algorithms for measuring the AFM1 levels in milk product.