Upconverting nanoparticles (UCNPs) composed of NaYF and doped with photoactive Yb and Er (NaYF:Yb/Er) are highly desirable for many biological applications, but obtaining stable dispersions of UCNPs is challenging. Traditional synthetic methods often use complicated synthetic steps, produce toxic side products, and require post modifications to make UCNPs more dispersible in aqueous solutions. In this study, we demonstrate that laser ablation in liquid (LAL) is a novel approach to synthesize water-dispersible and -stable UCNPs with advantages of particle-size tuning, in situ coating of UCNPs with capping agents, no use of toxic or high boiling point solvents, and short reaction times. NaYF:Yb/Er UCNPs were produced through LAL of annealed targets using water as the liquid, and their compositions and properties were investigated at a laser fluence of 0.57 J cm-6.22 J cm by direct capping with citric acid and ethylene glycol and by comparing with the UCNPs prepared from the traditional hydrothermal method. Low laser fluences produced polydisperse particles consisting of no photoactive species through a thermal evaporation mechanism, while high laser fluences generated UCNPs with more uniform morphologies and compositions similar to the target material by an explosive ejection mechanism. The inclusion of capping agents during LAL allowed for direct coating of the UCNP surface without the need of post modifications, and the concentrations of capping agents affected the UCNP photoluminescence lifetimes. As compared to the hydrothermal method, the LAL-prepared samples showed better size control and no degradation of the capping agents.