Nanomaterials have been demonstrated as useful tools for molecular imaging, molecular diagnosis and targeted therapy in biomedical research. The main advantages of such nanomaterials are improved circulation times, precise targeting, enhancement of dissolution rates and enhanced contrast. A challenge and opportunity for nanotechnological strategies is that multiple functionalities, such as therapeutics, targeting, imaging and stimuli responsiveness can be achieved within one nanoparticle. Multifunctional nanoparticles are now actively under investigation and are imminent as the next generation of nanoparticles for providing custom and tailored treatment. This review considers contemporary approaches and possible future directions in the emerging area of multifunctional nanoparticles with a special focus on targeted drug delivery.