Nanomedicine involves the use of nanoparticles for therapeutic and diagnostic purposes. During the past two decades, a growing number of nanomedicines have received regulatory approval and many more show promise for future clinical translation. In this context, it is important to evaluate the safety of nanoparticles in order to achieve biocompatibility and desired activity. However, it is unwarranted to make generalized statements regarding the safety of nanoparticles, since the field of nanomedicine comprises a multitude of different manufactured nanoparticles made from various materials. Indeed, several nanotherapeutics that are currently approved, such as Doxil and Abraxane, exhibit fewer side effects than their small molecule counterparts, while other nanoparticles (e.g. metallic and carbon-based particles) tend to display toxicity. However, the hazardous nature of certain nanomedicines could be exploited for the ablation of diseased tissue, if selective targeting can be achieved. This review discusses the mechanisms for molecular, cellular, organ, and immune system toxicity, which can be observed with a subset of nanoparticles. Strategies for improving the safety of nanoparticles by surface modification and pretreatment with immunomodulators are also discussed. Additionally, important considerations for nanoparticle safety assessment are reviewed. In regards to clinical application, stricter regulations for the approval of nanomedicines might not be required. Rather, safety evaluation assays should be adjusted to be more appropriate for engineered nanoparticles.