Carbon nanotubes (CNTs) are recognized as promising nanomaterials for technological advancement. However, the stigma of structural similarity with asbestos fibers has slowed down progress of CNTs in nanomedicine. Nevertheless, it also prompted thorough studies that have revealed that functionalized CNTs (fCNTs) can biologically behave in a very different and safer manner. Here we review pristine and fCNT fate in biological settings, focusing on the importance of protein interaction, formation of the protein corona, and modulation of immune response. The emerging consensus on the desirable fCNT properties to achieve immunological neutrality, and even biodegradation, shows great promise for CNT adoption in medicine.