In the current work, synthesis and characterization of various rare-earth (RE) doped and co-doped Y2O3 nanomaterials were undertaken. RE dopants such as terbium (Tb), europium (Eu) and erbium (Er) were successful doped, and ytterbium (Yb)-erbium (Er) was co-doped into yttrium oxide (Y2O3) nanomaterials. The as-synthesized nanomaterials are highly-dispersed in organic phase. X-ray diffraction (XRD) peaks confirms the crystallinity of the as-prepared Y2O3 samples and peaks can be assigned to cubic Y2O3. Room temperature photoluminescence (PL) spectra showed characteristic emission peaks of Tb, Eu and Er ions doped, and Er-Yb co-doped Y2O3 samples. Up-conversion spectra of green and red emissions were also shown for Er-Yb co-doped Y2O3 samples and the intensities of the green and red emissions could be altered by varying the dopant concentration. The nanocrystals were surface-functionalized with amine (NH2) group via a reverse microemulsion method to render them water soluble and also afford them with the possibility of further functionalization by other bio-molecules. in vitro cytotoxicity studies showed that the synthesized nanocrystals have no appreciable toxicity on human hepatocellular carcinoma (Hep-G2) cells. Because of the Y2O3:RE nanomaterials' well-dispersity in water, low toxicity and good photoluminescence, they can potentially be used as fluorophores in bioimaging.