Carbamazepine (CBZ), a pharmaceutical compound, has been proposed as an anthropogenic marker to assess water quality due to its persistence in conventional treatment plants and widespread presence in water bodies. This paper presents a comprehensive literature review on sources and occurrences of CBZ in water bodies, as well as toxicological effects and regulations of the drug. Given the documented side effects of CBZ on the human body when taken medicinally, its careful monitoring in water is recommended. CBZ residues in drinking water may provide a pathway to embryos and infants via intrauterine exposure or breast-feeding, which may cause congenital malformations and/or neurodevelopmental problems over long term exposure. An in-depth technical assessment of the conventional and advanced treatment technologies revealed the inadequacy of the standalone technologies. Compared to conventional activated sludge and membrane bioreactor processes, effective removal of CBZ can be achieved by nanofiltration and reverse osmosis membranes. However, recent studies have revealed that harsh chemical cleaning, as required to mitigate membrane fouling, can often reduce the long-term removal efficiency. Furthermore, despite the efficient performance of activated carbon adsorption and advanced oxidation processes, a few challenges such as cost of chemicals and regeneration of activated carbon need to be carefully considered. The limitations of the individual technologies point to the advantages of combined and hybrid systems, namely, membrane bioreactor coupled with nanofiltration, adsorption or advanced oxidation process.