Biogen Idec, Gilead Sciences and other biotech companies plunged. After a huge run-up, those stocks have become volatile in recent weeks amid scrutiny over the cost of their drugs.
Facebook and Twitter, other recent investor favorites, also dropped.
The Nasdaq composite index lost 129 points, or 3.1 percent, to close 4,054, its biggest drop since November 2011.
The Dow Jones industrial average fell 266 points, 1.6 percent, to 16,170.
The Standard & Poor's 500 lost 39 points, or 2.1 percent, to 1,833. Ninety-six percent of the stocks in the index fell.
Small-company stocks also slid as investors sold riskier assets.
Bond prices rose as investors sought safety.