Rapidly growing interest in using nanoparticles (NPs) for biomedical applications has increased concerns about their safety and toxicity. In comparison with bulk materials, NPs are more chemically active and toxic due to the greater surface area and small size. Understanding the NPs' mechanism of toxicity, together with the factors influencing their behavior in biological environments, can help researchers to design NPs with reduced side effects and improved performance. After overviewing the classification and properties of NPs, this review article discusses their biomedical applications in molecular imaging and cell therapy, gene transfer, tissue engineering, targeted drug delivery, Anti-SARS-CoV-2 vaccines, cancer treatment, wound healing, and anti-bacterial applications. There are different mechanisms of toxicity of NPs, and their toxicity and behaviors depend on various factors, which are elaborated on in this article. More specifically, the mechanism of toxicity and their interactions with living components are discussed by considering the impact of different physiochemical parameters such as size, shape, structure, agglomeration state, surface charge, wettability, dose, and substance type. The toxicity of polymeric, silica-based, carbon-based, and metallic-based NPs (including plasmonic alloy NPs) have been considered separately.