Nanodiamonds are at the heart of a plethora of emerging applications in areas ranging from nanocomposites and tribology to nanomedicine and quantum sensing. The development of alternative synthesis methods, a better understanding, and the availability of ultrasmall nanodiamonds of less than 3 nm size with a precisely engineered composition, including the particle surface and atomic defects in the diamond crystal lattice, would mark a leap forward for many existing and future applications. Yet today, we are unable to accurately control nanodiamond composition at the atomic scale, nor can we reliably create and isolate particles in this size range. In this perspective, we discuss recent advances, challenges, and opportunities in the synthesis, characterization, and application of ultrasmall nanodiamonds. We particularly focus on the advantages of bottom-up synthesis of these particles and critically assess the physicochemical properties of ultrasmall nanodiamonds, which significantly differ from those of larger particles and bulk diamond.