We present a technique for the replacement of oleate with a PEG-phosphate ligand [PEG = poly(ethylene glycol)] as an efficient method for the generation of water-dispersible NaYF4 nanoparticles (NPs). The PEG-phosphate ligands are shown to exchange with the original oleate ligands on the Surface of the NPs, resulting in water-dispersible NPs. The upconversion intensity of the NPs in aqueous environments was found to be severely quenched when compared to the original NPs in organic solvents. This is attributed to an increase in the multiphotion relaxations of the lanthanide excited state in aqueous environments due to high energy vibrational modes of water molecules. This problem could be overcome partially by the synthesis of core/shell NPs which demonstrated improved photophysical properties in water over the original core NPs. The PEG-phosphate coated upconverting NPs were then used to image a line of ovarian cancer cells (CaOV3) to demonstrate their promise biological application.