In recent times, there has been considerable interest among researchers in magnesium oxide (MgO) nanoparticles, due to their excellent biocompatibility, stability, and diverse biomedical uses, such as antimicrobial, antioxidant, anticancer, and antidiabetic properties, as well as tissue engineering, bioimaging, and drug delivery applications. Consequently, the escalating utilization of magnesium oxide nanoparticles in medical contexts necessitates the in-depth exploration of these nanoparticles. Notably, existing literature lacks a comprehensive review of magnesium oxide nanoparticles’ synthesis methods, detailed biomedical applications with mechanisms, and toxicity assessments. Thus, this review aims to bridge this gap by furnishing a comprehensive insight into various synthetic approaches for the development of MgO nanoparticles. Additionally, it elucidates their noteworthy biomedical applications as well as their potential mechanisms of action, alongside summarizing their toxicity profiles. This article also highlights challenges and future prospects for further exploring MgO nanoparticles in the biomedical field. Existing literature indicates that synthesized magnesium oxide nanoparticles demonstrate substantial biocompatibility and display significant antibacterial, antifungal, anticancer, and antioxidant properties. Consequently, this review intends to enhance readers’ comprehension regarding recent advancements in synthesizing MgO nanoparticles through diverse approaches and their promising applications in biomedicine.