The association of cellular toxicity with the physiochemical properties of graphene-based materials is largely unexplored. A fundamental understanding of this relationship is essential to engineer graphene-based nanomaterials for biomedical applications. Here, an in vitro toxicological assessment of graphene oxide (GO) and reduced graphene oxide (RGO) and in correlation with their physiochemical properties is reported. GO is found to be more toxic than RGO of same size. GO and RGO induce significant increases in both intercellular reactive oxygen species (ROS) levels and messenger RNA (mRNA) levels of heme oxygenase 1 (HO1) and thioredoxin reductase (TrxR). Moreover, a significant amount of DNA damage is observed in GO treated cells, but not in RGO treated cells. Such observations support the hypothesis that oxidative stress mediates the cellular toxicity of GO. Interestingly, oxidative stress induced cytotoxicity reduces with a decreasing extent of oxygen functional group density on the RGO surface. It is concluded that although size of the GO sheet plays a role, the functional group density on the GO sheet is one of the key components in mediating cellular cytotoxicity. By controlling the GO reduction and maintaining the solubility, it is possible to minimize the toxicity of GO and unravel its wide range of biomedical applications.