Bare and doped zinc oxide nanomaterials (ZnO NMs) are of great interest as multifunctional platforms for biomedical applications. In this study, we systematically investigate the physicochemical properties of Aluminum doped ZnO (AZO) and its bio-interactions with neuroblastoma (SH-SY5Y) and red blood (RBCs) cells. We provide a comprehensive chemical and structural characterization of the NMs. We also evaluated the biocompatibility of AZO NMs using traditional toxicity assays and advanced microscopy techniques. The toxicity of AZO NMs towards SH-SY5Y cells, decreases as a function of Al doping but is higher than the toxicity of ZnO NMs. Our results show that N-acetyl cysteine protects SH-SY5Y cells against reactive oxygen species toxicity induced by AZO NMs. ZnO and AZO NMs do not exert hemolysis in human RBCs at the doses that cause toxicity (IC50) in neuroblastoma cells. The Atomic force microscopy qualitative analysis of the interaction of SH-SY5Y cells with AZO NMs shows evidence that the affinity of the materials with the cells results in morphology changes and diminished interactions between neighboring cells. The holotomographic microscopy analysis demonstrates NMs' internalization in SH-SY5Y cells, changes in their chemical composition, and the role of lipid droplets in the clearance of toxicants.