This article discusses optically active nanomaterials and their optical biosensing applications. In addition to enhancing their sensitivity, these nanomaterials also increase their biocompatibility. For this reason, nanomaterials, particularly those based on their chemical compositions, such as carbon-based nanomaterials, inorganic-based nanomaterials, organic-based nanomaterials, and composite-based nanomaterials for biosensing applications are investigated thoroughly. These nanomaterials are used extensively in the field of fiber optic biosensing to improve response time, detection limit, and nature of specificity. Consequently, this article describes contemporary and application-based research that will be of great use to researchers in the nanomaterial-based optical sensing field. The difficulties encountered during the synthesis, characterization, and application of nanomaterials are also enumerated, and their future prospects are outlined for the reader’s benefit.