Small (2–28 nm) NaREF₄ (rare earth (RE)=Nd–Lu, Y) nanoparticles (NPs) were prepared by an oil/water two‐phase approach. Meanwhile, hydrophilic NPs can be obtained through a successful phase‐transition process by introducing the amphiphilic surfactant sodium dodecylsulfate (SDS) into the same reaction system. Hollow‐structured NaREF₄ (RE=Y, Yb, Lu) NPs can be fabricated in situ by electron‐beam lithography on solid NPs. The MTT assay indicates that these hydrophilic NPs with hollow structures exhibit good biocompatibility. The as‐prepared hollow‐structured NPs can be used as anti‐cancer drug carriers for drug storage/release investigations. Doxorubicin hydrochloride (DOX) was taken as model drug. The release of DOX from hollow α‐NaLuF₄:20 % Yb³⁺, 2 % Er³⁺exhibits a pH‐sensitive release patterns. Confocal microscopy observations indicate that the NPs can be taken up by HeLa cells and show obvious anti‐cancer efficacy. Furthermore, α‐NaLuF₄:20 % Yb³⁺, 2 % Er³⁺ NPs show bright‐red emission under IR excitation, making both the excitation and emission light fall within the “optical window” of biological tissues. The application of α‐NaLuF₄:20 % Yb³⁺, 2 % Er³⁺ in the luminescence imaging of cells was also investigated, which shows a bright‐red emission without background noise.