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Cancer is ranked as the second leading cause of death globally. Traditional cancer therapies including chemotherapy are flawed, with off-target and on-target toxicities on the normal cells, requiring newer strategies to improve cell selective targeting. The application of nanomaterial has been extensively studied and explored as chemical biology tools in cancer theranostics. It shows greater applications toward stability, biocompatibility, and increased cell permeability, resulting in precise targeting, and mitigating the shortcomings of traditional cancer therapies. The nanoplatform offers an exciting opportunity to gain targeting strategies and multifunctionality. The advent of nanotechnology, in particular the development of smart nanomaterials, has transformed cancer diagnosis and treatment. The large surface area of nanoparticles is enough to encapsulate many molecules and the ability to functionalize with various biosubstrates such as DNA, RNA, aptamers, and antibodies, which helps in theranostic action. Comparatively, biologically derived nanomaterials perceive advantages over the nanomaterials produced by conventional methods in terms of economy, ease of production, and reduced toxicity. The present review summarizes various techniques in cancer theranostics and emphasizes the applications of smart nanomaterials (such as organic nanoparticles (NPs), inorganic NPs, and carbon-based NPs). We also critically discussed the advantages and challenges impeding their translation in cancer treatment and diagnostic applications. This review concludes that the use of smart nanomaterials could significantly improve cancer theranostics and will facilitate new dimensions for tumor detection and therapy.