Rare earth metals possess unique properties that make them extremely valuable for various industrial applications. Recently, there is a surge in the development of rare earth based upconversion nanoparticles (UCNPs) for biomedical applications including bioimaging and photothermal cancer therapy. Our findings on rare earth oxide nanoparticle biotransformation in an acidic environment and cytotoxicity raises safety concerns for rare earth based UCNPs. Although the health impacts of UCNPs have been carried out, they are mostly for lung effects after inhalation exposure and there are only limited studies on the effects of UCNPs on the liver. The liver is an important organ for nanotoxicological research because it is the primary bioaccumulation site for both incidental nanomaterials undergoing extrapulmonary translocation after inhalation and theranostic nanoparticles that are intravenously injected. This study aims to investigate the biotransformation pathways and mechanisms of toxicity of UCNPs to liver cells and determine whether ethylenediamine tetra-(methylene phosphonic acid) (EDTMP) is a suitable protective coating material to prevent liver cell toxicity. Understanding this aspect is important for the development of safe UCNPs for biomedical applications. Liver cell viability was assessed after exposure to coated and non-coated UCNPs. The EDTMP coating material was effective in reducing the toxicity of certain UCNPs based on the dose and chemical composition, suggesting it could be a safer-by-design approach for UCNP biomedical applications.