Carbon nanotubes (CNTs) represent one of the most studied allotropes of carbon. The unique physicochemical properties of CNTs make them among prime candidates for numerous applications in biomedical fields including drug delivery, gene therapy, biosensors, and tissue engineering applications. However, toxicity of CNTs has been a major concern for their use in biomedical applications. In this review, we present an overview of carbon nanotubes in biomedical applications; we particularly focus on various factors and mechanisms affecting their toxicity. We have discussed various parameters including the size, length, agglomeration, and impurities of CNTs that may cause oxidative stress, which is often the main mechanism of CNTs' toxicity. Other toxic pathways are also examined, and possible ways to overcome these challenges have been discussed.