Highly photoluminescent glass was prepared by embedding water-soluble nanocrystals in a glass matrix using a novel sol-gel process. Thiol-stabilized CdTe nanocrystals and aminopropyltrimethoxysilane were found to be the best combination in the preparation. The synthesis process had to be optimized to avoid nanocrystal agglomeration. The nanocrystals thus embedded in the glass matrix did not show any deterioration of the surface condition. The obtained glass combines excellent optical properties of nanocrystals with the high stability of glass; it emits light of various colors with narrow emission spectra and high photoluminescent efficiency (41%).