Water-soluble and carboxyl-functionalized up-converting rare-earth nanoparticles (UCNPs) are obtained via an efficient surface-ligand-exchange procedure. Hexanedioic acid molecules are employed to replace the original hydrophobic ligands in diethylene glycol solvent at high temperature. Various characterizations indicate the ligand-exchange process has negligible adverse effect on the quality of the UCNPs. The resulting hydrophilic UCNPs show small size, strong up-converting emission and high water stability. The specific molecular recognition capacity of avidin-modified hydrophilic UCNPs confirms that hydrophilic UCNPs are suitable for potential biological labeling.