Nanomedicine has emerged as a promising platform for targeted drug delivery, molecular diagnostics, cancer therapy, and regenerative medicine by exploiting the unique physicochemical properties of nanomaterials. However, conventional nanoparticle synthesis often relies on hazardous chemicals, energy-intensive processes, and complex purification steps that may limit biocompatibility, reproducibility, and large-scale clinical translation. Green synthesis has therefore gained increasing attention as a sustainable alternative, employing biological resources such as plant extracts, microorganisms, enzymes, and biopolymers to produce functional nanomaterials under environmentally benign conditions. These biologically derived nanoparticles exhibit enhanced surface functionality and have demonstrated applications in drug delivery, antimicrobial therapy, cancer treatment, bioimaging, biosensing, tissue engineering, and advanced biofabrication, including nano-enabled hydrogels and bioinks for 3D/4D bioprinting. Nevertheless, green synthesis should not be regarded as inherently non-toxic, as nanoparticle safety remains dependent on physicochemical characteristics, dosage, biodistribution, and biological interactions. Furthermore, challenges including batch-to-batch variability, mechanistic uncertainty, limited process standardization, long-term toxicity, and regulatory barriers continue to hinder clinical translation. This review critically examines recent advances in green synthesis, compares conventional and biological nanoparticle fabrication strategies, discusses functionalization approaches that improve therapeutic performance, and highlights current biomedical applications together with the key challenges and future perspectives for developing sustainable and clinically translatable nanomedicine.