Upconversion nanoparticles (UCNPs) of small size have great potential in homogeneous assay based on fluorescence resonance energy transfer (FRET). A novel approach of surface ligand-exchange for preparing water-soluble and amido-functionalized NaYF4∶Er3+, Yb3+ UCNPs with 12 nm was developed. The ligand exchange process was confirmed by Fourier transform infrared spectra. Investigations by scan electron microscopy showed no obvious variations in the size and shape of the UCNPs. The circular dichroism characterization demonstrates that the secondary structure of the avidin remains largely intact after the conjugation. Avidin-biotin served as a bridge to make the short enough distance for FRET between the acceptor biotinylated R-phycoerythrin and the donors avidin-conjugated UCNPs. When the free biotins were added into this system, they competitively combined with avidin on the UCNPs surface and impede the FRET to triggered fluorescence changes. According to the relationship between this change and the addition of the amount of biotin, such FRET-based approach can reach a limit of detection in the nanomolar concentration range.