The rapid consumption of metals and unorganized disposal have led to unprecedented increases in heavy metal ion concentrations in the ecosystem, which disrupts environmental homeostasis and results in agricultural biodiversity loss. Mitigation and remediation plans for heavy metal pollution are largely dependent on the discovery of cost-effective, biocompatible, specific, and robust detectors because conventional methods involve sophisticated electronics and sample preparation procedures. Carbon dots (CDs) have gained significant importance in sensing applications related to environmental sustainability. Fluorescence sensor applications have been enhanced by their distinctive spectral properties and the potential for developing efficient photonic devices. With the recent development of biomass-functionalized carbon dots, a wide spectrum of multivalent and bivalent transition metal ions responsible for water quality degradation can be detected with high efficiency and minimal toxicity. This review explores the various methods of manufacturing carbon dots and the biochemical mechanisms involved in metal detection using green carbon dots for sensing applications involving Cu (II), Fe (III), Hg (II), and Cr (VI) ions in aqueous systems. A detailed discussion of practical challenges and future recommendations is presented to identify feasible design routes.