We have designed and synthesized a series of modular ligands based on poly(ethylene glycol) (PEG) coupled with functional terminal groups to promote water-solubility and biocompatibility of quantum dots (QDs). Each ligand is comprised of three modules: a PEG single chain to promote hydrophilicity, a dihydrolipoic acid (DHLA) unit connected to one end of the PEG chain for strong anchoring onto the QD surface, and a potential biological functional group (biotin, carboxyl, and amine) at the other end of the PEG. Water-soluble QDs capped with these functional ligands were prepared via cap exchange with the native hydrophobic caps. Homogeneous QD solutions that are stable over extended periods of time and over a broad pH range were prepared. Surface binding assays and cellular internalization and imaging showed that QDs capped with DHLA-PEG-biotin strongly interacted with either NeutrAvidin immobilized on surfaces or streptavidin coupled to proteins which were subsequently taken up by live cells. EDC coupling in aqueous buffer solutions was also demonstrated using resonance energy transfer between DHLA-PEG-COOH-functionalized QDs and an amine-terminated dye. The new functional surface ligands described here provide not only stable and highly water-soluble QDs but also simple and easy access to various biological entities.