Nanoscale materials have been explored extensively as agents for therapeutic and diagnostic (i.e. theranostic) applications. Research efforts have shifted from exploring new materials in vitro to designing materials that function in more relevant animal disease models, thereby increasing potential for clinical translation. Current interests include non-invasive imaging of diseases, biomarkers and targeted delivery of therapeutic drugs. Here, we discuss some general design considerations of advanced theranostic materials and challenges of their use, from both diagnostic and therapeutic perspectives. Common classes of nanoscale biomaterials, including magnetic nanoparticles, quantum dots, upconversion nanoparticles, mesoporous silica nanoparticles, carbon-based nanoparticles and organic dye-based nanoparticles, have demonstrated potential for both diagnosis and therapy. Variations such as size control and surface modifications can modulate biocompatibility and interactions with target tissues. The needs for improved disease detection and enhanced chemotherapeutic treatments, together with realistic considerations for clinically translatable nanomaterials will be key driving factors for theranostic agent research in the near future.