Metal nanoshells are a novel type of composite spherical nanoparticle consisting of a dielectric core covered by a thin metallic shell which is typically gold. Nanoshells possess highly favorable optical and chemical properties for biomedical imaging and therapeutic applications. By varying the relative the dimensions of the core and the shell, the optical resonance of these nanoparticles can be precisely and systematically varied over a broad region ranging from the near-UV to the mid-infrared. This range includes the near-infrared (NIR) wavelength region where tissue transmissivity peaks. In addition to spectral tunability, nanoshells offer other advantages over conventional organic dyes including improved optical properties and reduced susceptibility to chemical/thermal denaturation. Furthermore, the same conjugation protocols used to bind biomolecules to gold colloid are easily modified for nanoshells. In this article, we first review the synthesis of gold nanoshells and illustrate how the core/shell ratio and overall size of a nanoshell influences its scattering and absorption properties. We then describe several examples of nanoshell-based diagnostic and therapeutic approaches including the development of nanoshell bioconjugates for molecular imaging, the use of scattering nanoshells as contrast agents for optical coherence tomography (OCT), and the use of absorbing nanoshells in NIR thermal therapy of tumors.