Highly colloidal Gd2O3:Eu nanoparticles (core-NPs) were synthesized by thermal decomposition via weak base at low temperature. The sol–gel chemical process was employed for silica layer surface coating to increase solubility, colloidal stability, biocompatibility, and non-toxicity at the ambient conditions. XRD results indicate the highly purified, crystalline, single phase, and cubic phase Gd2O3 nanocrystals. TEM image shows that the mesoporous thick silica layer was effectively coated on the core nanocrystals, which have irregular size with nearly spherical shape and grain size about 10–30 nm. An absorption spectra and zeta potential results in aqueous media revealed that solubility, colloidal stability, and biocompatibility character were enhanced from core to core–shell structure because of silica layer surface encapsulation. The samples, demonstrated excellent photoluminescence properties (dominant emission 5D0 → 7F2 transition in the red region at 610 nm), indicated to be used in optical bio-detection, bio-labeling, etc. The photoluminescence intensity of the silica shell modified core/shell NPs was suppressed relatively core-NPs; it indicates the multi-photon relaxation pathways arising from the surface coated high vibrational energy molecules of the silanol groups. The core/nSiO2/mSiO2 nanocrystals display strong emission (5D0 → 7F2) transition along with excellent solubility and biocompatibility, which may find promising applications in the photonic based biomedical field.