Polyvinylpyrrolidone (PVP) capped rod-shaped europium (Eu3+) doped gadolinium oxide (Gd2O3) nanoparticles (PVP@Gd2O3:Eu(3+)NPs) were synthesized by a wet chemical method at 90 degrees C. NPs were characterised by X-ray diffraction (XRD), high resolution transmission electron microscopy (HR-TEM), Fourier-transform infrared spectroscopy (FTIR), thermogravimetric analysis (TGA), fluorescence spectroscopy and inductively coupled plasma optical emission spectrometry (ICP-OES). The PVP@Gd2O3:Eu3+NP surface was then functionalized with human serum albumin (HSA) to form HSA@PVP@Gd2O3:Eu(3+)NPs. Both PVP@Gd2O3:Eu(3+)NPs and HSA@PVP@Gd2O3:Eu(3+)NPs showed strong host sensitized fluorescence in water. The surface functionalization with HSA enhanced the stability of the NPs in both aqueous and biological media. The NPs dispersed in water were highly sensitive towards Fe3+, Cr(3+)and Cu(2+)ion detection, among various transition and heavy metal ions. The HSA@PVP@Gd2O3:Eu(3+)NPs exhibited almost five times lower detection limit for Fe3+, Cr(3+)and Cu(2+)ions compared to PVP@Gd2O3:Eu(3+)NPs. PVP@Gd2O3:Eu(3+)NPs were highly selective for a water sample containing >0.667 ppm Fe3+, Cu2+, and Cr(3+)ions, while the HSA@PVP@Gd2O3:Eu(3+)NPs at <0.667 ppm were highly selective towards Fe(3+)ion sensing. The PVP@Gd2O3:Eu(3+)and HSA@PVP@Gd2O3:Eu(3+)NPs were employed as contrast agents in MRI with improved longitudinal relaxivity (r(1)) values of 6.96 and 6.15 mM(-1)s(-1), respectively. These values are higher than that of the commercial contrast agent Magnevists. The Gd2O3:Eu(3+)NPs were capped with PVP and coated with HSA for surface functionalization as a useful MRI contrast agent and for transition metal ion detection.