The demand for photostable luminescent reporters that absorb and emit light in the red to near-infrared (NIR) spectral region continues in biomedical research and bioanalysis. In recent years, classical organic fluorophores have increasingly been displaced by luminescent nanoparticles. These consist of either polymer or silica based beads that are loaded with luminescent dyes, conjugated polymers, or inorganic nanomaterials such as semiconductor nanocrystals (quantum dots), colloidal clusters of silver and gold, or carbon dots. Among the inorganic materials, photon upconversion nanocrystals exhibit a high potential for application to bioimaging or biomolecular assays. They offer an exceptionally high photostability, can be excited in the NIR, and their anti-Stokes emission enables luminescence detection free of background and perturbing scatter effects even in complex biological samples. These lanthanide doped inorganic crystals have multiple emission lines that can be tuned by the selection of the dopants.This review article is focused on the applications of functionalized photon upconversion nanoparticles (UCNPs) to chemical sensing. This is a comparatively new field of research activity and mainly directed at the sensing and imaging of ubiquitous chemical analytes in biological samples, particularly in living cells. For this purpose, the particles have to be functionalized with suitable indicator dyes or recognition elements, as they do not show an intrinsic or specific luminescence response to most of these analytes (e.g. pH, oxygen, metal ions). We describe the strategies for the design of such responsive nanocomposites utilizing either luminescence resonance energy transfer or emission-reabsorption (inner filter effect) mechanisms and also highlight examples for their use either immobilized in sensor layers or directly as nanoprobes for intracellular sensing and imaging.