Humans are increasingly exposed to nanoparticles (NPs) in medicine and in industrial settings, where significant concentrations of NPs are common. However, NP interactions with and effects on biomolecules and organisms have only recently been addressed. Within we review the literature regarding proposed modes of action for metal and metal-oxide NPs, two of the most prevalent types manufactured. Iron-oxide NPs, for instance, are used as tracers for magnetic resonance imaging of oncological tumors and as vehicles for therapeutic drug delivery. Factors and theories that determine the physicochemical and biokinetic behaviors of NPs are discussed, along with the observed toxicological effects of NPs on cells. Key thermodynamic and kinetic models that explain the sources of energy transfer from NPs to biological targets are summarized, in addition to quantitative structural activity relationship (QSAR) modeling efforts. Future challenges for nanotoxicological research are discussed. We conclude that NP studies based on cell culture are often inconsistent and underestimate the toxicity of NPs. Thus, the effect of NPs needs to be examined in whole animal systems.