As-prepared samples of YPO4:2Dy nanoparticles prepared by polyol route show strong blue luminescence because of strong host contribution, whereas 500 and 900°C annealed samples show cold and warm white luminescence, respectively because of different energy transfer rates from host to Dy3+. Li+ co-doping improves luminescence intensity as well as crystallinity significantly. Interestingly, Li+ ions occupy interstitial sites of lattice. These materials will be potential candidates for white light emitting diodes and near-infrared emitting phosphors.