Nanoparticles are often referred to as miracle materials with extensive applications in various fields, especially in biomedicine, and in cancer treatment. Regarding vast applications of nanoparticles in biomedicine, photothermal therapy (PTT) also attracts the attention of researchers in various fields, since PTT is noninvasive and can provide localized therapy. We provide an extensive review that explores the use of various nanoparticles, including carbon-based, metallic, semiconductor, and composite nanostructures, in PTT and theranostic applications. The work also illustrates the mechanisms underlying the photothermal conversion process in nanomaterials, which were discussed in detail. Moreover, the review demonstrates recent advancements in photothermal nanoparticles such as surface modifications, PEGylation, polydopamine coating, composite nanoparticle formations, core@shell formations, and biomolecule functionalization. Such advancements and modifications enhance their drug delivery behaviors, tumor-targeting efficiency, biocompatibility, and multimodal characteristics. Furthermore, such modifications lead to combined imaging and therapeutic functionalities, which were often referred to as theranostics where magnetic resonance imaging (MRI), X-ray computed tomography (CT) and photoacoustic imaging (PAI) enables precise monitoring and treatment of tumors simultaneously. The review gives an insight into the potential of photothermal nanoparticles and enables researchers to truly discover the potential of the photothermal nanoparticles for future research directions where photothermal nanoparticles can find practical applications in nanomedicine and cancer therapy.