The recent emergence of conjugated polymer-based nanostructured materials has stimulated a lot of interest in developing light harvesting systems. Here, we describe the formation of  nanoparticles from polymer molecules [poly[2-methoxy-5-(2-ethylhexyloxy)-1,4-phenylenevinylene] (MEHPPV) by adding a nonsolvent (water) and understand their collapsing mechanism from the extended form by using molecular dynamics simulations. Free energy calculations reveal that the thermodynamically stable state of the polymer in water and 75% (v/v) water/THF mixture is a collapsed state. The red shift of the absorption band of the collapsed state is found due to a change in polarity of the solvent. The change in intensity of the blue and red emission bands with a change in the solvent polarity is explained due to a change in conformation from the extended state to the collapsed state of the polymer. Ultrafast spectroscopic analysis reveals a systematic decrease of the faster component at 554 nm (33 to 2 ps), indicating the energy transfer process. The faster component (150 fs) of the time-resolved anisotropy decay due to the fast depolarization process confirms the interchain energy transfer in the collapsed state. The fundamental understanding of photophysics of conjugated polymer nanoparticles should pave the way for future development of light harvesting systems.