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Carbon nanotubes (CNTs) are considered as one of the ideal materials due to their high surface area, high aspect ratio, and impressive material properties, such as mechanical strength, and thermal and electrical conductivity, for the manufacture of next generation composite materials. In spite of the mentioned attractive features, they tend to agglomerate due to their inherent chemical structure which limits their application. Surface modification is required to overcome the agglomeration and increase their dispersability leading to enhanced interactions of the functionalized CNTs with matrix materials/polymer matrices. Recent developments concerning reliable methods for the functionalization of carbon nanotubes offer an additional thrust towards extending their application areas. By chemical functionalization, organic functional groups are generated/attached to the surfaces as well as the tip of CNTs which opens up the possibilities for tailoring the properties of nanotubes and extending their application areas. Different research efforts have been devoted towards both covalent and non-covalent functionalization for different applications. Functionalized CNTs have been used successfully for the development of high quality nanocomposites, finding wide application as chemical and biological sensors, in optoelectronics and catalysis. Non covalently functionalized carbon nanotubes have been used as a substrate for the immobilization of a large variety of biomolecules to impart specific recognition properties for the development of miniaturized biosensors as well as designing of novel bioactive nanomaterials. Functionalized CNTs have also been demonstrated as one of the promising nanomaterials for the decontamination of water due to their high adsorption capacity and specificity for various contaminants. Specifically modified CNTs have been utilized for bone tissue engineering and as a novel and versatile drug delivery vehicle. This review article discusses in short the synthesis, properties and applications of CNTs. This includes the need for functionalization of CNTs, methods and types of functionalization, and properties of functionalized CNTs and their applications especially with respect to material and biomedical sciences, water purification, and drug delivery systems.