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Carbon dots (CDs) have garnered significant interest for their potential use in multiple applications due to their size, fluorescent properties, high photostability, low toxicity and biocompatibility. CDs can be tailored for specific needs, as they can be synthesized with diverse precursors and techniques for functionalization. Since the applications of CDs are rapidly expanding, this review highlights recent developments in this burgeoning field. Specifically, we describe advances in CD synthesis tailored for applications that include pH and temperature sensing, biochemical analysis, and bioimaging. We also discuss various challenges and practical solutions that will drive CD-based research forward. Challenges include the lack of standardized synthesis and purification methods for CDs, the lack of clarity regarding their mechanism of action, and procedural flaws in their applications. In conclusion, we provide recommendations for collaboration among disciplines to bridge existing knowledge gaps and address the key challenges required for CDs to be fully commercialized.