A novel hydrothermal approach for the preparation of europium(III)-doped yttrium oxide (Y 2 O 3 :Eu 3+ ) nanocrystals was reported. The as-synthesized Y 2 O 3 :Eu 3+ nanocrystals with diameter of about 5nm are highly uniform and dispersed in water. The Y 2 O 3 :Eu 3+ nanocrystals were characterized by high-resolution transmission electron microscopy and fluorescence spectroscopy. Due to their well dispersity in water, low toxicity, and good photoluminescence, the Y 2 O 3 :Eu 3+ nanocrystals can potentially be used in high-definition displays and fluorescence probe in bioimaging.