Nanomedicine is an emerging field that integrates nanotechnology, biomolecular engineering, life sciences and medicine; it is expected to produce major breakthroughs in medical diagnostics and therapeutics. Due to the size-compatibility of nano-scale structures and devices with proteins and nucleic acids, the design, synthesis and application of nanoprobes, nanocarriers and nanomachines provide unprecedented opportunities for achieving a better control of biological processes, and drastic improvements in disease detection, therapy, and prevention. Recent advances in nanomedicine include the development of functional nanoparticle based molecular imaging probes, nano-structured materials as drug/gene carriers for in vivo delivery, and engineered molecular machines for treating single-gene disorders. This review focuses on the development of molecular imaging probes and engineered nucleases for nanomedicine, including quantum dot bioconjugates, quantum dot-fluorescent protein FRET probes, molecular beacons, magnetic and gold nanoparticle based imaging contrast agents, and the design and validation of zinc finger nucleases (ZFNs) and TAL effector nucleases (TALENs) for gene targeting. The challenges in translating nanomedicine approaches to clinical applications are discussed.