Nanotechnology is a multidisciplinary scientific field undergoing explosive development. Nanometer-sized particles offer novel structural, optical and electronic properties that are not attainable with individual molecules or bulk solids. Advances in nanomedicine can be made by engineering biodegradable nanoparticles such as magnetic iron oxide nanoparticles, polymers, dendrimers and liposomes that are capable of targeted delivery of both imaging agents and anticancer drugs. This leads toward the concept and possibility of personalized medicine for the potential of early detection of cancer lesions, determination of molecular signatures of the tumor by noninvasive imaging and, most importantly, molecular targeted cancer therapy. Increasing evidence suggests that the nanoparticles, whose surface contains a targeting molecule that binds to receptors highly expressed in tumor cells, can serve as cancer image contrast agents to increase sensitivity and specificity in tumor detection. In comparison with other small molecule contrast agents, the advantage of using nanoparticles is their large surface area and the possibility of surface modifications for further conjugation or encapsulation of large amounts of therapeutic agents. Targeted nanoparticles ferry large doses of therapeutic agents into malignant cells while sparing the normal healthy cells. Such multifunctional nanodevices hold the promise of significant improvement of current clinical management of cancer patients. This review explores the development of nanoparticles for enabling and improving the targeted delivery of therapeutic agents, the potential of nanomedicine, and the development of novel and more effective diagnostic and screening techniques to extend the limits of molecular diagnostics providing point-of-care diagnosis and more personalized medicine.