We report water-in-oil microemulsion mediated synthesis of PEG1 coated Gd2O3 NPs2 loaded with fluorescent anti-cancer drug dox3 for synchronous drug delivery, optical and MR4 imaging applications. These PEG covered Gd2O3 NPs loaded with dox (Gd-PEG-dox NPs) were found to possess spherical morphology with 13 nm size as measured from TEM and the hydrodynamic diameter comes out to be 37 nm as determined from DLS. Fluorescence spectra and fluorescence microscopy images confirmed optical activity of the NPs. The paramagnetic nature of NPs was affirmed by NMR line broadening effect on the spectrum of surrounding water protons. Therefore, these particles can be efficiently used as CA5 in MR imaging. In vitro analysis showed significant cellular uptake of particles by A-549 cells. A pH dependent drug release pattern was observed for the NPs. Cell viability assay performed on A-549, PANC-1 and U-87 cancerous cell lines revealed that Gd-PEG-dox NPs are cytotoxic. On the basis of these observations, it can be concluded that these multi-modal paramagnetic NPs promise potential cancer therapy along with optical and MR imaging applications.