Rare earth (RE) nanoparticles have attracted considerable attention due to their unique optical and magnetic properties associated with f-electrons. The recent accomplishments in RE nanoparticle synthesis have aroused great interest of scientists to further explore their biomedical applications. This Research News summarizes recent achievements in controlled synthesis of magnetic and luminescent RE nanoparticles, surface modification, and toxicity studies of RE nanomaterials, and highlights state-of-the-art in in vivo applications of RE nanoparticles.