Rare-earth doped nanoparticle (RE), termed upconversion nanoparticle (UCNP), is a new generation of phosphorescence which has recently attracted significant research interest. Due to the unique upconversion properties, UCNP has been considered to be an excellent alternative for conventional fluorescence. Since its first emergence in mid-1960s, UCNPs have been studied in a wide range of fields, including those in biological applications. Owing to its suitable size distribution and biocompatibility, UCNP could be conjugated with various kinds of biomolecules, resulting in the development of numerous biological platforms such as biodetection assays and therapeutic modalities. The unique optical properties of UCNP such as prominent luminescence, deep penetration to biological tissues without damaging the cells, low background and high resistance to photo-bleaching enhance UCNP prospects as an excellent contrast agent in both in vitro and in vivo. In this review, we discuss the recent developments of UCNP in bioassays, optical imaging, and therapy, also the prospects and challenges of UCNP-based detection in the development of biomedical science.