Nanomaterials (NMs) have revolutionized multiple aspects of medicine by enabling novel sensing, diagnostic, and therapeutic approaches. Advancements in processing and fabrication have also allowed significant expansion in the applications of the major classes of NMs based on polymer, metal/metal oxide, carbon, liposome, or multi-scale macro-nano bulk materials. Concomitantly, concerns regarding the nanotoxicity and overall biocompatibility of NMs have been raised. These involve putative negative effects on both patients and those subjected to occupational exposure during manufacturing. In this review, we describe the current state of testing of NMs including those that are in clinical use, in clinical trials, or under development. We also discuss the cellular and molecular interactions that dictate their toxicity and biocompatibility. Specifically, we focus on the reciprocal interactions between NMs and host proteins, lipids, and sugars and how these induce responses in immune and other cell types leading to topical and/or systemic effects.