The unique and versatile nature of functionalized upconversion nanoparticles (UCNPs) have earned them great popularity in bio-photonic applications. They are very effective emitters and have superior luminescent properties, low autofluorescence, high chemical and thermal stability, deep tissue penetration, high biocompatibility and low toxicity. They are particularly promising in the biomedical and clinical sphere with their relatively high emission efficiency. Other benefits, including high purity of color, ready surface functionalization, and good colloidal stability, only add to their beauty. Much literature has focused on creating effective methods to synthesize and engineer UCNPs with customized morphologies, which allows their application to advanced luminescence biosensing and specifically fluorescent resonance energy transfer (FRET)-based biosensing. This chapter points out the current development and improvement of the application of UCNPs in optical biosensing, in terms of synthesis, surface modification, variables that affect the efficiency of emission, and effective applications in the detection of pathogenic diseases, free radicals, and biomarkers. Particular emphasis is placed on functionalization methods, such as organic ligand conjugation, doping methods and encasing or conjugating biological species. Building on recent scientific advances, traditional optical applications such as biosensing, immunosensing, and biomarker detection are now being expanded. The chapter concludes with an outlook on current challenges and future research directions to guide continued development in this rapidly evolving field.