The use of traditional fluorophores for in vivo imaging applications is limited by poor quantum yield, poor tissue penetration of the excitation light, and excessive tissue autofluorescence, while the use of inorganic fluorescent particles that offer a high quantum yield is frequently limited due to particle toxicity. Rare-earth-doped nanoparticles that utilize near-infrared upconversion overcome the optical limitations of traditional fluorophores, but are not typically suitable for biological application due to their insolubility in aqueous solution, lack of functional surface groups for conjugation of biomolecules, and potential cytotoxicity. A new approach to establish highly biocompatible and biologically targetable nanoshell complexes of luminescent rare-earth-doped NaYF4 nanoparticles (REs) excitable with 920–980 nm near-infrared light for biomedical imaging applications is reported. The approach involves the encapsulation of NaYF4 nanoparticles doped with Yb and Er within human serum albumin nanoshells to create water-dispersible, biologically functionalizable composite particles. These particles exhibit narrow size distributions around 200 nm and are stable in aqueous solution for over 4 weeks. The albumin shell confers cytoprotection and significantly enhances the biocompatibility of REs even at concentrations above 200 µg REs mL−1. Composite particles conjugated with cyclic arginine-glycine-aspartic acid (cRGD) specifically target both human glioblastoma cell lines and melanoma cells expressing αvβ3 integrin receptors. These findings highlight the promise of albumin-encapsulated rare-earth nanoparticles for imaging cancer cells in vitro and the potential for targeted imaging of disease sites in vivo.