Two-dimensional graphene offers interesting electronic, thermal and mechanical properties that are currently explored for advanced electronics, membranes and composites. Here we synthesize and explore the biological application of nano-graphene oxide NGO, single-layer graphene oxide sheets down to a few nanometers in lateral width. We develop functionalization chemistry to impart solubility and compatibility of NGO in biological environments. We obtain size separated pegylated NGO sheets that are soluble in buffers and serum without agglomeration. The NGO sheets are found to be photoluminescent in the visible and infrared regions. The intrinsic photoluminescence of NGO is used for live cell imaging in the near-infrared with little background. We found that simple physisorption via pi-stacking can be used for loading doxorubicin, a widely used cancer drug onto NGO functionalized with antibody for selective cancer cell killing in vitro. Owing to the small size, intrinsic optical properties, large specific surface area,low cost, and useful non-covalent interactions with aromatic drug molecules, NGO is a promising new material for biological and medical applications.