YVO₄:Ho³⁺/Yb³⁺ nanophosphors prepared by an effective polyol-mediated route show dual-mode behavior in photoluminescence. Upon 980 nm excitation, the upconversion red emission spectrum exhibits a bright red peak at ∼650 nm, characteristic of the electronic transition of the Ho³⁺ ion via involvement of two-photon absorption, which has been confirmed by the power-dependent luminescence study. Moreover, at 300 nm excitation, downconversion emission peaks are observed at 550, 650, and ∼755 nm. The nonradiative resonant energy transfer occurs from the V−O charge transfer band to Ho³⁺ ions, resulting in an improved emission of Ho³⁺ ions. Moreover, polyethylene glycol-coated nanoparticles make it suitable for water dispersibility; and these particles are conjugated with Fe₃O₄ nanoparticles to form magnetic−luminescent hybrid nanoparticles. Highly water-dispersible magnetic−luminescent hybrid material attained the hyperthermia temperature (∼42 °C) under an applied AC magnetic field. The specific absorption rate value is found to be high (138 W/g), which is more than that of pure superparamagnetic Fe₃O₄ nanoparticles. At 300 nm excitation, the high quantum yield value of ∼27% is obtained from YVO₄:Ho³⁺/Yb³⁺, which suggests that it is a good phosphor material. By employing the neutron activation analysis technique, it is shown that nanophosphor particles can absorb Au³⁺ up to the ppm level. Interestingly, such nanophosphor also shows the potentiality for anticounterfeiting applications.