Preliminary experiments in animals have found nanoparticles capable of moving into and damaging the lungs, brain and other organs, The Washington Post report quoting a study commissioned by the British government.
While some nanomaterials may be able to neutralize poisons in soil or groundwater, others appear environmentally toxic themselves, it said.
The joint report by Britain's Royal Society and Royal Academy of Engineering strongly warns that the manufactured specks at the heart of nanotechnology behave in unpredictable ways and in some cases appear surprisingly toxic.
The biggest concern is that free-roaming nanoparticles or nanotubes could be inhaled, absorbed through the skin or build up in the environment, it said.
The report recommends that increasingly popular nanoparticle-laden cosmetics be kept off the market until proven safe for use on skin.
Nanotechnology involves manipulating individual atoms to create molecular devices smaller that the human cell. At that size -- about one-millionth the size of a pin head -- materials possess different chemical and physical properties than those of identical material.
Nanotechnology has been around for a few decades, but it is only now that its potential is being realised. Products already created with the technique include computer chips, stain-resistant trousers, DVD players, anti-glare windows, among other products.
That means minimizing the release of the particles into standard waste streams and ensuring that workers inhale as few of them as possible, it said.
The report suggests that consumers would be best served by the labeling of products made with nanomaterials -- and by being educated about the science's benefits, lest it meet the same fate of negative public perception that has hobbled nuclear power and genetically engineered foods.
The report is not downbeat on nanotechnology overall. In fact, it echoes the enthusiasm that has been expressed by manufacturing interests and US Commerce Department officials, who have predicted that the technology will power the "next industrial revolution."
Hundreds of tons of nanomaterials were manufactured last year in the United States and the US market is expected to top $1 trillion within a decade.
US Environmental Protection Agency spokesman Michael Brown said his agency will review the report as it devises new regulatory strategies for nanomaterials.
"EPA is aware of this emerging technology," he said, "and we agree that it is important to develop the appropriate regulatory oversight to ensure protection of public health and the environment."