In the past decade, nanomedicine with its promise of improved therapy and diagnostics has revolutionized conventional health care and medical technology. Dendrimers and dendrimer-based therapeutics are outstanding candidates in this exciting field as more and more biological systems have benefited from these starburst molecules. Anticancer agents can be either encapsulated in or conjugated to dendrimer and be delivered to the tumour via enhanced permeability and retention (EPR) effect of the nanoparticle and/or with the help of a targeting moiety such as antibody, peptides, vitamins, and hormones. Imaging agents including MRI contrast agents, radionuclide probes, computed tomography contrast agents, and fluorescent dyes are combined with the multifunctional nanomedicine for targeted therapy with simultaneous cancer diagnosis. However, an important question reported with dendrimer-based therapeutics as well as other nanomedicines to date is the long-term viability and biocompatibility of the nanotherapeutics. This critical review focuses on the design of biocompatible dendrimers for cancer diagnosis and therapy. The biocompatibility aspects of dendrimers such as nanotoxicity, long-term circulation, and degradation are discussed. The construction of novel dendrimers with biocompatible components, and the surface modification of commercially available dendrimers by PEGylation, acetylation, glycosylation, and amino acid functionalization have been proposed as available strategies to solve the safety problem of dendrimer-based nanotherapeutics. Also, exciting opportunities and challenges on the development of dendrimer-based nanoplatforms for targeted cancer diagnosis and therapy are reviewed (404 references).