Nanoparticles are tiny materials (<1000 nm in size) that have specific physicochemical properties different to bulk materials of the same composition and such properties make them very attractive for commercial and medical development. However, nanoparticles can act on living cells at the nanolevel resulting not only in biologically desirable, but also in undesirable effects. In contrast to many efforts aimed at exploiting desirable properties of nanoparticles for medicine, there are limited attempts to evaluate potentially undesirable effects of these particles when administered intentionally for medical purposes. Therefore, there is a pressing need for careful consideration of benefits and side effects of the use of nanoparticles in medicine. This review article aims at providing a balanced update of these exciting pharmacological and potentially toxicological developments. The classes of nanoparticles, the current status of nanoparticle use in pharmacology and therapeutics, the demonstrated and potential toxicity of nanoparticles will be discussed.