This paper reports dual function Gd2O3/C nanoshells for application in MR contrast images and NIR-triggered killing cancer cells. The nanoshells are prepared using biological gelatin particles as core templates through a two-step thermal treatment. The surfaces of the nanoshells can be readily modified by poly(styrene-alt-maleic acid) (PSMA) polymer to improve their water-dispersible properties and increase their biocompatibility. The Gd2O3/C nanoshells show brightened images of kidney cortex and liver in mice, whereas the Gd2O3/C@PSMA nanoshells show a darkened liver signal. The biodistribution is measured as a function of time and shows that the nanoshells circulate in the vessels and are cleared out gradually from organs. The graphite carbon coated on the Gd2O3 nanoshells displays absorbance in the near-IR (NIR) region. A large extinction coefficient is obtained, indicating the potential of the nanoshells as photothermal agents. The Gd2O3/C@PSMA nanoshells conjugated with anti-epithermal growth factor receptor antibodies are used for targeting and destroying A549 lung cancer cells by means of NIR-triggered killing capability. Both laser power density and material dose dependence are investigated to evaluate photothermolysis in cancer cells.