A novel approach for the fabrication of multifunctional microspheres integrating several advantages of mesoporous, luminescence, and temperature responses into one single entity is reported. First, the hollow mesoporous silica capsules are fabricated via a sacrificial template route. Then, Gd2O3:Eu3+ luminescent nanoparticles are incorporated into the internal cavities to form rattle-type mesoporous silica nanocapsules by an incipient-wetness impregnation method. Finally, the rattle-type capsules serve as a nanoreactor for successfully filling temperature-responsive hydrogel via photoinduced polymerization to form the multifunctional composite microspheres. The organic–inorganic hybrid microspheres show a red emission under UV irradiation due to the luminescent Gd2O3:Eu3+ core. The in vitro cytotoxicity tests show that the samples have good biocompatibility, which indicates that the nanocomposite could be a promising candidate for drug delivery. In addition, flow cytometry and confocal laser scanning microscopy (CLSM) confirm that the sample can be effectively taken up by SKOV3 cells. For in vitro magnetic resonance imaging (MRI), the sample shows the promising spin-lattice relaxation time (T1) weighted effect and could potentially apply as a T1-positive contrast agent. This composite drug delivery system (DDS) provides a positive temperature controlled “on-off”drug release pattern and the drug, indomethacin (IMC), is released fast at 45 °C (on phase) and completely shut off at 20 °C (off phase). Meanwhile Gd2O3:Eu3+ plays an important role as the luminescent tag for tracking the drug loading and release process by the reversible luminescence quenching and recovery phenomenon. These results indicate that the obtained multifunctional composite has the potential to be used as a smart DDS for biomedical applications.