Semiconductor nanocrystals (NCs) have found application in biology mostly as optical imaging agents where the photophysical properties of the NCs are insensitive to species in their environment. This tutorial review examines the application of CdSe NCs as optical sensing agents where the NC's photophysical properties are sensitive to species in their environment. For this case, the NC is modified at the surface with a conjugate, which interacts with an external agent by physical (i.e. recognition) or chemical means. Signal transduction in these chem-bio (CB) sensitive NCs is derived primarily from energy transfer between the NC and the external agent, which functions as the energy transfer acceptor or donor. Signaling may be obtained by directly detecting luminescence from the NC and/or the conjugate. New developments for the use of NCs as gain materials in micro-lasing cavities (distributed feedback gratings and spherical resonators) opens the way to designing CB-sensitive NCs for high-gain sensing applications.