The worldwide pollution of water bodies by potential contaminants such as heavy metals, dyes, and pesticides etc. have severely affected the entire eco-system due to their toxic mobility and tough degradation in water. Consequently, there is a requirement to develop cost-competitive and easily handleable sensing materials which can detect targets sensitively and with selectivity. Among the low-cost sensory materials, carbon dots (CDs) constitute an important class of carbon nanomaterial with unique photostability, electronic and fluorescent properties. This review is an effort to comprehend the recent improvements in the sensing applications of CDs with prominence on synthetic routes, the effect of various synthesis parameters on physical properties (quantum yield, size range), detection mechanisms, and detection parameters (limit of detection, interference etc.). Particularly, the scope and progress for the detection of potential water contaminants using CDs have been explored and a holistic view of mechanisms of their detection has been included.