A simple and efficient method for the synthesis of water-soluble NdF3 and NdF3:Ba2+ nanocrystals under hydrothermal conditions is established. The method involves the coating of the nanocrystals with a layer of hydrophilic polymer polyvinylpyrrolidone (PVP). The as-prepared products are characterized by powder X-ray diffraction, field emission scanning electronic microscopy, Fourier transform infrared spectroscopy, and photoluminescence spectroscopy. The PVP coating transforms the nanocrystals into a biocompatible material and improves the fluorescence intensity of NdF3 in the near infrared (NIR) region. The morphology of the nanoparticles changes, whereas the fluorescence intensity of NdF3 in the NIR region increases when a small amount of Ba2+ is doped into the NdF3/PVP nanoparticles.