Fluorescent nanodiamonds (FNDs) are promising bio-imaging probes compared with other fluorescent nanomaterials such as quantum dots, dye-doped nanoparticles, and metallic nanoclusters, due to their remarkable optical properties and excellent biocompatibility. Nevertheless, they are prone to aggregation in physiological salt solutions, and modifying their surface to conjugate biologically active agents remains challenging. Here, inspired by the adhesive protein of marine mussels, we demonstrate encapsulation of FNDs within a polydopamine (PDA) shell. These PDA surfaces are readily modified via Michael addition or Schiff base reactions with molecules presenting thiol or nitrogen derivatives. We describe modification of PDA shells by thiol terminated poly(ethylene glycol) (PEG-SH) molecules to enhance colloidal stability and biocompatibility of FNDs. We demonstrate their use as fluorescent probes for cell imaging; we find that PEGylated FNDs are taken up by HeLa cells and mouse bone marrow-derived dendritic cells and exhibit reduced nonspecific membrane adhesion. Furthermore, we demonstrate functionalization with biotin-PEG-SH and perform long-term high-resolution single-molecule fluorescence based tracking measurements of FNDs tethered via streptavidin to individual biotinylated DNA molecules. Our robust polydopamine encapsulation and functionalization strategy presents a facile route to develop FNDs as multifunctional labels, drug delivery vehicles, and targeting agents for biomedical applications.