Quantum-dot (QD) nanocrystals are promising fluorescent probes for multiplexed staining assays in biological applications. However, nonspecific QD binding to cellular membranes and proteins remains a limiting factor in detection sensitivity and specificity. Here we report a new class of hydroxyl (-OH)-coated QDs for minimizing nonspecific cellular binding and for overcoming the bulky size problems encountered with previous surface coatings. The hydroxylated QDs are prepared from carboxylated (-COOH) dots via a hydroxylation and cross-linking process. With a compact hydrodynamic size of 13-14 nm (diameter), they are highly fluorescent (>60% quantum yields) and stable under both basic and acidic conditions. By using human cancer cells, we have evaluated their superior nonspecific binding properties against that of carboxylated, protein-coated, and poly(ethylene glycol) (PEG)-coated QDs. Quantitative cellular staining data indicate that the hydroxylated QDs result in a dramatic 140-fold reduction in nonspecific binding relative to that of carboxylated dots and a still significant 10-20-fold reduction relative to that of PEG- and protein-coated dots.