Nanomaterials can be engineered with distinctive properties for their use in agriculture, environment, medicine, cosmetics and household commodities. Nonetheless, knowledge on the toxicity of engineered nanomaterials is actually limited, and their potential adverse effects should not be overlooked. In particular, it is important to understand the dynamics and mechanism of nanotoxicity. Toxicity of engineered nanomaterials arises mainly from their ability to produce reactive oxygen species, their ease of absorption and distribution into various tissues, and their kinetics of elimination from the human body. Therefore, toxicity mechanisms should be tested in model biological systems, with focus on properties such as size, shape, surface modification, composition, and aggregation. Here we review the fundamentals of nanotoxicity, methods to assess the toxicity of engineered nanomaterials, approaches to reduce toxicity during synthesis, and prospects of engineered nanomaterials in nanomedicine.