Up-converting rare-earth nanophosphors (UCNPs) have great potential to revolutionize biological luminescent labels, but their use has been limited by difficulties in obtaining UCNPs that are biocompatible. To address this problem, we have developed a simple and versatile strategy for converting hydrophobic UCNPs into water-soluble and carboxylic acid-functionalized analogues by directly oxidizing oleic acid ligands with the Lemieux-von Rudloff reagent. This oxidation process has no obvious adverse effects on the morphologies, phases, compositions and luminescent capabilities of UCNPs. Furthermore, as revealed by Fourier transform infrared (FTIR) and NMR results, oleic acid ligands on the surface of UCNPs can be oxidized into azelaic acids (HOOC(CH2)7COOH), which results in the generation of free carboxylic acid groups on the surface. The presence of free carboxylic acid groups not only confers high solubility in water, but also allows further conjugation with biomolecules such as streptavidin. A highly sensitive DNA sensor based on such streptavidin-coupled UCNPs have been prepared, and the demonstrated results suggest that these biocompatible UCNPs have great superiority as luminescent labeling materials for biological applications.