Upon contact with plasma or other protein-containing biological fluids, the surface of nanoparticles is immediately decorated with proteins forming a biologically active protein corona. The biological fates and functions of nanoparticles are determined by physiological responses toward these nanoparticle–protein corona complexes as the effective biological unit of nanoparticles. In this article, we review representative studies on the effects of particle physicochemical characteristics along with the protein profiles in the biological medium on the formation of protein corona and importantly, how the dynamic nature and protein fingerprints of the formed corona govern the biological responses toward nanoparticles. The biological effects arising from the presence of protein corona can be both beneficial and unfavourable to the biomedical applications of nanoparticles. The protein corona–cell interactions open up the feasibility of targeted delivery and cell-specific uptake of therapeutic nanoparticles and in other circumstances, engineering of nanoparticles as adjuvants for vaccine development as well as mitigation of the unintentional cytotoxic effects of nanoparticles. On the other hand, the protein corona–cell interactions could induce rapid clearance of nanoparticles from in vivo circulation as well as activating unwanted inflammatory responses. Taken together, the knowledge on the formation and biological effects of protein corona enables tailored tuning of the physicochemical characteristics of nanoparticles, unique to their intended biological activity.