Surfactant-passivated germanium nanocrystals (Ge(0) NCs) 3-5 nm in diameter were synthesized and encapsulated with functionalized phospholipids to yield water-soluble Ge(0) NCs. Upon encapsulation, the NCs retained their cubic crystalline phase and displayed good resistance to oxidation, as determined by transmission electron microscopy and X-ray photoelectron spectroscopy. As a test of their cell compatibility, the ability of carboxyfluorescein (CF)-labeled dinitrophenyl (DNP)-functionalized Ge(0) NCs to crosslink dinitrophenol-specific immunoglobulin E antibodies on the surface of mast cells (RBL-2H3) was examined in vitro. Treatment with a multivalent DNP antigen (i.e., DNP-Ge(0) NCs or CF-DNP-Ge(0) NCs) caused crosslinking of FcepsilonRI receptors and cellular responses, which were evaluated with morphological and colorimetric assays and live-cell fluorescence microscopy. Incubation of RBL-2H3 cells with Ge(0) NCs for approximately 24 h gave less than a 2 % increase in cell death as compared to DNP-functionalized bovine serum albumin. When irradiated with near-infrared (NIR) radiation (lambda(exc)=770 nm, 1.1 W cm(-2)) from a continuous-wave Ti:sapphire laser, the bulk-solution temperature of a toluene solution containing 20 mg mL(-1) Ge(0) NCs increased by approximately 35 degrees C within 5 min. Phospholipid-encapsulated water-soluble Ge(0) NCs at concentrations of 1.0 mg mL(-1) also displayed stable photothermal behavior under repetitive and prolonged NIR laser exposures in water, to yield a temperature increase of approximately 20 degrees C within 5 min (lambda(exc)=770 nm, 0.9 W cm(-2)). The photothermal efficiency of water-soluble Ge(0) NCs compares favorably with a recent report for Au nanoshells.