In recent years, carbon dots, graphene quantum dots, and other carbon nanocolloids have attracted a mounting interest as readily available, non-toxic, and tailorable carbon-based nanomaterials. One of the most fascinating features of carbon nanocolloids is their luminescence, the origin of which remains a source of dispute. The lack of understanding of the optical properties of carbon nanocolloids hampers their use in technological, environmental, and biomedical processes. Here, we review the current knowledge of excited states in carbon nanocolloids and related properties, inviting researchers to embrace the complexity of carbon nanocolloids. We point to the fundamental problems associated with their structure, photophysics, and photochemistry and highlight multiple directions of current and future research of this exciting class of nanomaterials.