Typical photoluminescent semiconductor nanoparticles, called quantum dots (QDs), have potential applications in biological labeling. When used to label stem cells, QDs may impair the differentiation capacity of the stem cells. In this study, we synthesized zinc oxide (ZnO) QDs in methanol with an average size of ∼2 nm. We then employed two different types of polyethylene glycol (PEG) molecules (SH-PEG-NH2 and NH2-PEG-NH2) to conjugate ZnO QDs and made them water-dispersible. Fourier transform infrared spectroscopy spectra indicated the attachment of PEG molecules on ZnO QDs. No obvious size alteration was observed for ZnO QDs after PEG conjugation. The water-dispersible ZnO QDs still retained the antibacterial activity and fluorescence intensity. The cytotoxicity evaluation revealed that ZnO QDs at higher concentrations decreased cell viability but were generally safe at 30 ppm or below. Cell lines of hepatocytes (HepG2), osteoblasts (MC3T3-E1) and mesenchymal stem cells (MSCs) were successfully labeled by the water-dispersible ZnO QDs at 30 ppm. The ZnO QD-labeled MSCs maintained their stemness and differentiation capacity. Therefore, we conclude that the water-dispersible ZnO QDs developed in this study have antibacterial activity, low cytotoxicity, and proper labeling efficiency, and can be used to label a variety of cells including stem cells.