Nanoparticles (NPs) have enormous potential to improve disease diagnosis and treatment due to their intrinsic electronic, optical, magnetic, mechanical, and physiological properties. To realize their full potential for nanomedicine, NPs must be biocompatible and targetable toward specific biomolecules to ensure selective sensing, imaging, and drug delivery in complex environments such as living cells, tissues, animals, and human bodies. In this Account, we summarize our efforts to impart specific biocompatibility and biorecognition functionality to NPs by developing strategies to integrate inorganic and organic NPs with functional DNA (fDNA), including aptamers, DNAzymes, and aptazymes to create fDNA-NPs. These hybrid NPs take advantage of fDNA's ability to either bind targets or catalyze reactions in the presence of targets selectively and utilize their unique physicochemical properties including small size, low immunogenicity, and ease of synthesis and chemical modification in comparison with other molecules such as antibodies. By integrating inorganic NPs such as gold NPs, quantum dots, and iron oxide nanoparticles with fDNA, we designed stimuli-responsive fDNA-NPs that exhibit target induced assembly and disassembly of NPs, resulting in a variety of colorimetric, fluorescent, and magnetic resonance imaging (MRI)-based sensors for diagnostic of a broad range of analytes. To impart both biocompatibility and selectivity on inorganic NPs for targeted bioimaging, we have demonstrated DNA-mediated surface functionalization, shape-controlled synthesis, and coordinative assembly of such NPs as specific bioprobes. A highlight is provided on the construction of fDNA-based nanoprobes with light-activatable sensing and imaging functions, which provides precise control of recognition properties of fDNA with high spatiotemporal resolution. To explore the potential of organic NPs for biosensing applications, we have developed an enzyme-responsive fDNA-liposome as a universal sensing platform compatible with diverse biological targets as well as different detection methods including fluorescence, MRI, or temperature, making possible point-of-care diagnostics. To expand the application regime of organic NPs, we collaborated with the Zimmerman group to prepare single-chain block copolymer-based NPs and incorporated it with a variety of functions, including monovalent DNA for assembly, tunable surface chemistry for cellular imaging, and coordinative Cu(II) sites for catalyzing intracellular click reactions, demonstrating the potential of using organic NPs to create promising fDNA-NP systems with programmable functionalities. Furthermore, we survey our recent endeavor in integration of cell-specific aptamers with different NPs for targeted drug delivery, showing that introducing stimuli-responsive properties into NPs that target tumor microenvironments would enable safer and more effective therapy for cancers. Finally, current challenges and future perspectives in fDNA-mediated engineering of NPs for biomedical applications are discussed.