Abstract: Graphene quantum dots (GQDs) have emerged as a transformative technology in biomedicine, driven by their exceptional optical, electronic, physicochemical, and biological properties. Their substantial π-conjugated system, low toxicity, biocompatibility, and tunable surface chemistries enable diverse functionalities, including adjustable fluorescence for biosensing and bioimaging, high drug loading capacity, effective cell membrane penetration for targeted delivery, and efficient radiation absorption for cancer therapeutics. Despite significant advancements, the interaction mechanisms of GQDs with biological systems remain inadequately explored, hindering their real-world clinical applications. This review summarizes the recent developments in GQD-based technologies, emphasizing the critical role of their interaction mechanisms in multifunctional applications, ranging from detection to therapy. It highlights innovative design strategies and the pivotal influence of GQD interactions with analytes, nucleic acids, and cellular components in enhancing the sensitivity and specificity of biosensors. Furthermore, it presents an in-depth analysis of their multifunctional roles and mechanisms in emerging applications like drug delivery, triple negative breast cancer treatment, and antimicrobial therapies. Particular attention is given to their synergistic role in combinational breast cancer therapies, where interactions with reactive oxygen species and photothermal agents amplify therapeutic efficacy. Finally, it addresses key challenges and proposes future research directions in this evolving field.