Upconversion nanoparticles (UCNPs) are one kind of luminescence nanomaterials that convert low energy photons to high energy emissions. These nanomaterials have recently attracted enormous attention due to their unique photophysical properties, such as resistance to photobleaching and photoblinking, low background autofluorescence, and long luminescence lifetime. Owing to these unique advantages, UCNPs have been widely examined for biomedical applications, including biosensing, imaging, and theranostics. In this review, we have first summarized the mechanisms for three generally accepted upconversion luminescence processes, i.e., lanthanide (Ln) doped upconversion luminescence, dye-sensitized upconversion, and triplet–triplet annihilation upconversion, and then discussed recent advancements on the preparation, functionalization, and biomedical applications of each type of UCNPs. The review article finally concludes with our perspectives on UCNPs’ emerging and potential biomedical applications in the near future.