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Layer-by-layer (LbL) based self-assembly of nanoparticles is an emerging and powerful method to develop multifunctional and tissue responsive nanomedicines for a broad range of diseases. This unique assembly technique is able to confer a high degree of modularity, versatility, and compositional heterogeneity to nanoparticles via the sequential deposition of alternately charged polyelectrolytes onto a colloidal template. LbL assembly can provide added functionality by directly incorporating a range of functional materials within the multilayers including nucleic acids, synthetic polymers, polypeptides, polysaccharides, and functional proteins. These materials can be used to generate hierarchically complex, heterogeneous thin films on an extensive range of both traditional and novel nanoscale colloidal templates, providing the opportunity to engineer highly precise systems capable of performing the numerous tasks required for systemic drug delivery. In this review, we will discuss the recent advancements towards the development of LbL nanoparticles for drug delivery and diagnostic applications, with a special emphasis on the incorporation of biostability, active targeting, desirable drug release kinetics, and combination therapies into LbL nanomaterials. In addition to these topics, we will touch upon the next steps for the translation of these systems towards the clinic.