The fluorescent carbon quantum dots (CQDs) represent an emerging subset of carbonaceous nanomaterials, recently becoming a powerful tool for biosensing, bioimaging, and drug and gene delivery. In general, carbon dots are defined as zero-dimensional (0D), spherical-like nanoparticles with <10 nm in size. Their unique chemical, optical, and electronic properties make CQDs versatile materials for a wide spectrum of applications, mainly for the sensing and biomedical purposes. Due to their good biocompatibility, water solubility, and relatively facile modification, these novel materials have attracted tremendous interest in recent years, which is especially important for nanotechnology and nanoscience expertise. The preparation of the biomass-derived CQDs has attracted growing interest recently due to their low-cost, renewable, and green biomass resources, presenting also the variability of possible modification for the enhancement of CQDs’ properties. This review is primarily focused on the recent developments in carbon dots and their application in the sensing of different chemical species within the last five years. Furthermore, special emphasis has been made regarding the green approaches for obtaining CQDs and nanomaterial characterization toward better understanding the mechanisms of photoluminescent behavior and sensing performance. In addition, some of the challenges and future outlooks in CQDs research have been briefly outlined.