Carbon dots (CDs), a kind of carbon material discovered accidentally, exhibit unexpected advantages in fluorescence imaging/sensing such as photostability, biocompatibility, and low toxicity. For emerging theranostics, an interdiscipline created by integrating therapy and diagnostics, CDs are good candidates when they are combined with targeted chemo/gene/photodynamic/photothermal therapeutic moieties. Here, the development of CDs in nanomedicine is reviewed from their use as original imaging agents and/or drug carriers to multifunctional theranostic systems. Finally, the challenges and prospects of the next‐generation of CD‐based theranostics for clinical applications are also discussed.