Diabetes mellitus, a widespread metabolic disease characterized by high blood sugar levels, affects many people globally. The limitations of conventional diagnostic and therapeutic approaches necessitate exploring innovative strategies. Nanotechnology shows remarkable potential for revolutionizing the field of diabetes theranostics (combined diagnosis and treatment) by enabling accurate diagnosis and precise treatment delivery. This article provides a comprehensive review of the latest advancements in nanomaterials for diagnosing and treating diabetes. It explores the applications of various nanomaterials, including inorganic and organic nanoparticles, nanocomposites, and nanostructured biosensors, in biomarker detection, glucose monitoring, insulin delivery, and addressing diabetes-related complications. The study focuses on the synthesis and functionalization of nanomaterials for diabetes, covering both traditional and environmentally friendly synthesis methods. This study looks into how nanomaterials can be used to carry natural antidiabetic extracts, recombinant insulin, and other antidiabetic drugs, to make them more bioavailable, targetable, and effective. However, the review also talks about the problems that come with using nanosensors to diagnose diabetes. It also looks at the newest developments in nanosensors for biomarker detection, implantable devices, and continuous glucose monitoring. Additionally, the review examines the potential of nanomaterials in the management of diabetic sequelae, including diabetic nephropathy, cardiovascular disorders, retinopathy, and wound healing. We underscore the significance of nanomaterials in islet transplantation, as they provide immunological protection and enhance the viability and efficacy of islets. This study provides useful insights into the prospects and challenges connected with the rapidly growing field of nanotechnology in diabetic theranostics through a comprehensive examination of the current landscape. Academics, clinicians, and stakeholders engaged in developing innovative nanomaterial-based approaches to accurately diagnose and effectively manage diabetes will find this resource highly helpful.