Homotopies through embeddings are usually called isotopies.

There is a subtlety called local flatness that comes up in higher dimensions. Let $E$ be any embedding of $\mathbb R$ in $\mathbb R^3$ such that $E(s)=(s,0,0)$ when $s<-1$ or $s>1$. Define a homotopy $H_t$ with $E_0(s)=(s,0,0)$ for all $s\in \mathbb R$ and $E_1=E$, as follows: $E_t(s)=tE(s/t)$ if $-t\le s\le t$ and otherwise $E_t(s)=(s,0,0)$. This is a homotopy through embeddings, but it (un)ties the knot. This is easily adapted to apply to examples of embeddings of $S^1$ in $\mathbb R^3$, for example.

The way to fix this problem is to only consider embeddings that are locally flat and isotopies that are locally flat. An embedding $E:M\to N$ is (topologically) locally flat if for every point $p\in M$ there exist charts around $p$ and $E(p)$ such that $E$ looks like $(x_1,\dots,x_m)\mapsto (x_1,\dots,x_m,0,\dots,0)$. An isotopy $E_t$ is locally flat if for each point $p\in M$ and time $\tau\in I$ there are charts around $(p,\tau)\in M\times I$ and around $(E_\tau(p),\tau)\in N\times I$, both of them using projection to $I$ as last coordinate, such that locally $(x,t)\mapsto (E_t(x),t)$ looks like $(x_1,\dots,x_m,t)\mapsto (x_1,\dots,x_m,0,\dots,0,t)$. Local flatness is automatic when $m=1$ and $n=2$. The example I gave (with $m=1$ and $n=3$) was such that the isotopy was not locally flat although if the original embedding $E_1$ was locally flat then for every $t$ the embedding $E_t$ was, too.

The Alexander horned sphere ($m=2$, $n=3$, not locally flat) can be smoothed out by such a procedure, too.

Another way of limiting oneself to the right kind of isotopies is to use ambient isotopies: to require $E_t$ to be $H_t\circ E_0$ where $H_t$ is a homeomorphism $N\to N$ depending on $t$. (Local flatness in the case $m=n$ follows from invariance of domain.)

Another way is to limit oneself to smooth embeddings (meaning, as usual, smooth maps that are topological embeddings and that are one to one on the tangent-space level, or equivalently locally flat in the smooth category) and smooth isotopies.

Knots and physicsfor smooth curves. – Mariano Suárez-Alvarez♦ Jul 21 '10 at 2:45