Eu³⁺ and Dy³⁺ doped YPO₄ nanoparticles dispersible in methanol/water were prepared by the reaction of Y³⁺ and Eu³⁺/Dy³⁺ ions with ammonium dihydrogen phosphate in ethylene glycol medium at 160^oC. Nature and extent of strain associated with lattice has been found to change with incorporation of Eu³⁺/Dy³⁺ ion in the nanoparticles as well as the heat treatment temperature. Based on the TEM studies, it has been established that particles are highly crystalline with an average particle size of around 5 nm. Co-doping YPO₄:Eu nanoparticles with Dy³⁺ ions followed by annealing them at high temperature (900^oC) lead to reduction in both Eu³⁺ and Dy³⁺ luminescence intensities from the sample and this has been attributed to the clustering effect of the lanthanide ions.