Biomedical microbubbles stabilized by a coating of magnetic or drug-containing nanoparticles show great potential for theranostics applications. Nanoparticle-coated microbubbles can be made to be stable, to be echogenic, and to release the cargo of drug-containing nanoparticles with an ultrasound trigger. This Article reviews the design principles of nanoparticle-coated microbubbles for ultrasound imaging and drug delivery, with a particular focus on the physical chemistry of nanoparticle-coated interfaces; the formation, stability, and dynamics of nanoparticle-coated bubbles; and the conditions for controlled nanoparticle release in ultrasound. The emerging understanding of the modes of nanoparticle expulsion and of the transport of expelled material by microbubble-induced flow is paving the way toward more efficient nanoparticle-mediated drug delivery. This Article highlights the knowledge gap that still remains to be addressed before we can control these phenomena.