In this work, we studied the optical properties of Dy-doped Gd2O3 nanoparticles (NPs) before and after their APTES functionalisation. We obtained luminescent Dy@Gd2O3 NPs (0.5, 1, and 5% mol) using a modified polyol method. Our work describes their detailed structural analysis using FT-IR, XRD, HRTEM, TGA and XAS techniques. The results show that these systems present a crystalline structure with a body-centred cubic cell and particle sizes of 10 nm. The dopant position was inferred as substitutional, through XAS analysis at the M4,5-edges of Gd and Dy and K-edge of O, and in C2 sites, based on photoluminescence studies. There was sensitization of the luminescence by the matrix as shown by the emission increase of the hypersensitive transition (6F9/2 → 6H13/2, 572 nm) and also a broadband appears around 510 nm attributed to defects in Gd2O3. An enhanced emissive lifetime of 398 μs was found for the sample doped at 1%. We functionalised the Dy@Gd2O3 (at 1%) NPs with 3-aminopropiltrietoxisilane (APTES) for further application as a biomarker sensor. We found that these NPs conserved their luminescence after adding the surface agent (avoiding quenching effects) making them potential materials for biosensing.