The rapid advancement of nanotechnology has raised the possibility of using engineered nanoparticles that interact within biological environments for treatment of diseases. Nanoparticles interacting with cells and the extracellular environment can trigger a sequence of biological effects. These effects largely depend on the dynamic physicochemical characteristics of nanoparticles, which determine the biocompatibility and efficacy of the intended outcomes. Understanding the mechanisms behind these different outcomes will allow prediction of the relationship between nanostructures and their interactions with the biological milieu. At present, almost no standard biocompatibility evaluation criteria have been established, in particular for nanoparticles used in drug delivery systems. Therefore, an appropriate safety guideline of nanoparticles on human health with assessable endpoints is needed. In this review, we discuss the data existing in the literature regarding biocompatibility of nanoparticles for drug delivery applications. We also review the various types of nanoparticles used in drug delivery systems while addressing new challenges and research directions. Presenting the aforementioned information will aid in getting one step closer to formulating compatibility criteria for biological systems under exposure to different nanoparticles. Display omitted