Electron transfer (ET) is an ultimate property of chemical and biological processes and photochemistry, which is the root of the world. Thus, photoinduced electron transfer (PET) is a fundamental focus of modern research applied in biosensing, solar energy conversion, optoelectronics, and photocatalysis, where light-induced charge separation takes place within the reaction system. The reaction system is made by the combination of a photosensitizer, an electron donor or acceptor, and photocatalysis to control the reaction and offers the best path to reach the goal. In this review, we focus on the photosensitizer capability of carbon dots (C-Dots), investigating the fundamental charge-transfer (CT) processes of C-Dots in different confined environments, surface-modified C-Dots, and doped C-Dots utilizing a combined study of steady-state and time-resolved spectroscopic methods, such as time-correlated single photon counting, ultrafast transient absorption, and fluorescence up-conversion techniques. Thus, it is essential to investigate light-induced fundamental phenomena like charge separation, CT, and charge recombination to increase the efficiency of C-Dots-based materials. Both covalent and noncovalent interactions between C-Dots and quenchers (redox-active material) are used here to investigate the CT process in C-Dots. The photosensitizer behavior of C-Dots has been explored in the confined environments of micelle, reverse micelle, and cyclodextrin. Because of the presence of different surface groups, in click chemistry, mainly a coupling reaction is used for the surface modification of C-Dots using different redox-active small organic molecules such as dopamine, porphyrins, etc. Finally, carrier dynamics of doped C-Dots are successfully discussed in the absence and presence of a quencher. Also, it is observed that the fundamental charge-separation process will promote their use in a variety of photocatalysis, photovoltaic, and optoelectronic devices, photodetectors, and photoresponsive electronic transistors.