The scientific world is increasingly focusing on rare earth metal oxide nanomaterials due to their consequential biological prospects, navigated by breakthroughs in biomedical applications. Terbium belongs to rare earth elements (lanthanide series) and possesses remarkably strong luminescence at lower energy emission and signal transduction properties, ushering in wide applications for diagnostic measurements (i.e., bioimaging, biosensors, fluorescence imaging, etc.) in the biomedical sectors. In addition, the theranostic applications of terbium-based nanoparticles further permit the targeted delivery of drugs to the specific site of the disease. Furthermore, the antimicrobial properties of terbium nanoparticles induced via reactive oxygen species (ROS) cause oxidative damage to the cell membrane and nuclei of living organisms, ion release, and surface charge interaction, thus further creating or exhibiting excellent antioxidant characteristics. Moreover, the recent applications of terbium nanoparticles in tissue engineering, wound healing, anticancer activity, etc., due to angiogenesis, cell proliferation, promotion of growth factors, biocompatibility, cytotoxicity mitigation, and anti-inflammatory potentials, make this nanoparticle anticipate a future epoch of nanomaterials. Terbium nanoparticles stand as a game changer in the realm of biomedical research, proffering a wide array of possibilities, from revolutionary imaging techniques to advanced drug delivery systems. Their unique properties, including luminescence, magnetic characteristics, and biocompatibility, have redefined the boundaries of what can be achieved in biomedicine. This review primarily delves into various mechanisms involved in biomedical applications via terbium-based nanoparticles due to their physicochemical characteristics. This review article further explains the potential biomedical applications of terbium nanoparticles with in-depth significant mechanisms from the individual literature. This review additionally stands as the first instance to furnish a "single-platted" comprehensive acquaintance of terbium nanoparticles in shaping the future of healthcare as well as potential limitations and overcoming strategies that require exploration before being trialed in clinical settings.