Atomically precise gold nanoclusters (AuNCs) are an emerging class of quantum-sized nanomaterials. Intrinsic discrete electronic energy levels have endowed them with fascinating electronic and optical properties. They have been widely applied in the fields of optoelectronics, photovoltaics, catalysis, biochemical sensing, bio-imaging, and therapeutics. Nevertheless, most AuNCs are synthesized in organic solvents and do not disperse in aqueous solutions; this restricts their biological applications. In this review, we focus on the recent progress in the preparation of water-dispersible AuNCs and their biological applications. We first review different methods of synthesis, including direct synthesis from hydrophilic templates and indirect phase transfer of hydrophobic AuNCs. We then discuss their photophysical properties, such as emission enhancement and fluorescence lifetimes. Next, we summarize their latest applications in the fields of biosensing, biolabeling, and bioimaging. Finally, we outline the challenges and potential for the future development of these AuNCs.