Fluorescent nanoparticles used for biomedical applications should be small with narrow size distribution, and water-soluble with high luminescent efficiency. In this paper, uniform hexagonal-phase NaYF4:20%Yb, 2%Er nanocrystals (NCs) were synthesized in high boiling solvent oleylamine at 320 °C. The upconversion luminescence (UCL) intensity of the hexagonal-phase NaYF4:Yb, Er NCs in this work is much higher than that of other cubic-phase NCs. These hydrophobic NCs were further rendered hydrophilic using the ligand thioglycollic acid (TGA). The UCL properties of the surface-modified NCs were studied in contrast to the unmodified NCs under 980 nm laser diode excitation. After surface modification, the UCL revealed not only an enhancement of the red (4F9/2−4I15/2) emission with respect to the green (2H11/2, 4S3/2−4I15/2) one, but also an increase of the blue (2H9/2−4I15/2) due to the involving of surface vibration bonds −COOH, while the overall intensity had rarely changed. UCL dynamics were also studied, wh...