The number one way to stay safe on Ko Tao is to not drink and drive. Motorbike accidents are so common to the point that the term "Koh Tao Tattoo" is frequently used to jokingly describe the inevitable scrapes and bruises.
Be careful when renting bikes. You must give them the passport as a deposit, and even though you may take photos and return the bike in perfect condition, they may find small "scratches" and demand an exorbitant amount. If you do get in such trouble, at least in Ko Tao the police should be on your side. There's a friendly police officer named Chet who speaks very good English who might encourage you to file a report, saying that this happens several times a day on Ko Tao. Even if you don't file a report, the police can help you negotiate a lesser amount. If you do file a report, contact your embassy and eventually the company will have to release your passport, because it doesn't belong to you but your country's government.
Additionally, when renting bikes, insist on a receipt when you have paid the rental fee, or for every subsequent payment per rental day. Do not trust the shops to write accurate information in their own books. If you do not want to provide your passport as a deposit, some shops will ask for 2,000-8,000 baht as a one-off deposit instead. Again, take many detailed photos of the bike. Be careful about renting from CJ Guesthouse & Supermarket (13/1 Moo 1, Sairee Beach), on the same street as New Way Divers. They will not issue receipts if you do not ask, and later demand that you have not paid the cumulative rental fee when you return the bike. Without a receipt, it will be frustrating and difficult to argue your case. Do not trust CJ Guesthouse and be very careful on this matter even with other shops. Most bike shops on the island rent bikes for 200-250 baht per day.
Should you be unfortunate enough to need minor medical attention there are numerous clinics on the island. These are only clinics and the closest hospitals are in Ko Samui and Chumphon. Any medical condition not treatable locally will require a minimum of two hours ferry travel to reach a hospital. If the weather is bad the physical rigors of such a trip can complicate medical treatment significantly.
The island of Ko Tao has no sewage processing and water contamination far exceeds Western standards at nearly all times. This includes both ocean waters and tap waters. Sewer water drains across the beach and even the roads in several areas, and are easily encountered by unwitting tourists. Beware of wet spots on the roads that persist during dry weather and avoid the mist that arises from vehicles passing over them.
Small scratches or mosquito bites can become seriously infected if swimming, and ear/eye infections are extremely common among divers, more than many equivalent resort locations. Susceptible individuals and especially parents of young children should be aware of these dangers and exercise great caution.
Tap water quality supplied by shallow well pumps should be held suspect even during showering. Low-lying areas in Sairee and especially in Ban Chalok are the most polluted. The eastern areas far from the population centres are the cleanest.
Be also aware of the safety of your hotel room. There are many reports of stolen money, especially at the resorts on Sairee Beach. Normally the thieves, sometimes even hotel staff, sneak into the room while you are out diving and take your cash from your wallet or from your bags.
As always, watch out for the sun. It seems to be particularly strong on the island due to the bright sand and surroundings, especially when slightly clouded.
Watch out for the petrol stations, they like to let the meter start at more than zero: the red petrol station on the road that goes up to the turtle is particularly known for this.
Watch out for dive instructors teaching you the nitrox-course without telling you that they charge for it when you check out: Ban´s is known for this.