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We report, microemulsion mediated synthesis of FITC-dextran dye entrapped and silica coated Gd2O3 nanoparticles (NPs) for dual purpose of optical and magnetic resonance imaging, in the present study. TEM image revealed that the average size of the NPs is 18 nm and hydrodynamic diameter of the particles as measured by DLS comes out to be about 16 nm. Gd2O3 core show paramagnetism which is affirmed by the NMR line broadening effect on neighboring water proton spectrum and also by magnetization curve obtained in VSM analysis. The fluorescence of the entrapped dye is confirmed by the UV–vis and fluorescence spectroscopy. Nanoencapsulation of FITC-dextran fluorophore was found to increase its optical activity and provided a blanket against quenching. Moreover, TGA data revealed that entrapment of dye imparts thermal stability to it and enhances its fluorescence in comparison to bare dye. The release kinetic pattern (at pH 7.4) of the entrapped dye revealed that these particles behave as non-releasing system. The in-vitro cell viability (SRB) assay of the particles done on normal cell line (HEK-293) as well as cancerous cell line (A-549) indicated non-cytotoxic nature of the particles. In a nut-shell, these particles have the potential to be efficiently used for optical and magnetic resonance imaging. We anticipate that further optimization of these particles can be done by either conjugating or entrapping a drug for targeted drug delivery which would open more prospective options in biomedical field.