The flourishing field of nanomedicine provides great possibilities to enable targeted drug delivery and diagnostics, with the aid of carbon-based nanomaterials at the forefront of evolution. Owing to the tunable nature of the carbon-based nanomaterials, namely, fullerenes, carbon nanotubes (CNTs), graphene, and quantum dots (QDs), their potential application in healthcare is explored. The key transformation of these materials is achieved by functionalization, and this enhances their biocompatibility and also achieves adhesive specific functional groups to reach the target. The two broad medical applications that delve on these tailor-made functionalized nanomaterials are site-targeted drug delivery for therapeutic and diagnostic applications. The chapter showcases the transport of i) drug doxorubicin (DOX) using in chemotherapy, ii) biomolecules, and iii) antibodies. Due to functionalization, the hydrophilic nature of the carbon nanomaterials is obtained, and this makes it a suitable candidate for gene therapy, photodynamic therapy (PDT), and photothermal therapy (PTT). A brief description of the above-mentioned applications is discussed in this chapter. Also, the concept about silencing of malicious genes is discussed. Implementation of functionalized carbon dots to prolong the drug effectiveness for diabetic condition is discussed. This chapter also sheds light on the role of carbon-based nanomaterials as diagnostic tools. In the second section of this chapter, carbon-based nanomaterials as diagnostic tools are discussed. A brief description on how carbon-based nanomaterials are used to image cancer cells and to detect surface antigens from bacteria is provided. They are also used to detect a few viruses. Finally, the involvement of optical properties of these materials as sensors is explored with appropriate illustrations. Overall, this chapter captures the role of carbon nanomaterials in revolutionizing the nanomedicine, drug delivery, and sophisticated diagnostic possibilities.