Nanoparticles exhibit several unique properties that can be applied to develop chemical and biosensors possessing desirable features like enhanced sensitivity and lower detection limits. Gold nanoparticles are coated with sugars tailored to recognise different biological substances. When mixed with a weak solution of the sugar-coated nanoparticles, the target substance, e.g., ricin or E.coli, attaches to the sugar, thereby altering its properties and changing the colour. Spores of bacterium labeled with carbon dots have been found to glow upon illumination when viewed with a confocal microscope. Enzyme/nanoparticle-based optical sensors for the detection of organophosphate (OP) compounds employ nanoparticle-modified fluorescence of an inhibitor of the enzyme to generate the signal for the OP compound detection. Nanoparticles shaped as nanoprisms, built of silver atoms, appear red on exposure to light. These nanoparticles are used as diagnostic labels that glow when target DNA, e.g., those of anthrax or HIV, are present. Of great importance are tools like gold nanoparticle-enhanced surface-plasmon resonance sensor and silver nanoparticle surface-enhanced portable Raman integrated tunable sensor. Nanoparticle metal oxide chemiresistors using micro electro mechanical system hotplate are very promising devices for toxic gas sensing. Chemiresistors comprising thin films of nanogold particles, encapsulated in monomolecular layers of functionalised alkanethiols, deposited on interdigitated microelectrodes, show resistance changes through reversible absorption of vapours of harmful gases. This paper reviews the state-of-the-art sensors for chemical and biological terror agents, indicates their capabilities and applications, and presents the future scope of these devices.