Abstract. The aim of this study was to develop and characterize multifunctional biodegradable and biocompatible poly lactic-co-glycolic acid (PLGA) nanoparticles loaded with indocyanine green (ICG) as an optical-imaging contrast agent for cancer imaging and as a photothermal therapy agent for cancer treatment. PLGA-ICG nanoparticles (PIN) were synthesized with a particle diameter of 246 AE 11 nm, a polydispersity index of 0.10 AE 0.03, and ICG loading efficiency of 48.75 AE 5.48%. PIN were optically characterized with peak excitation and emission at 765 and 810 AE 5 nm, a fluorescence lifetime of 0.30 AE 0.01 ns, and peak absorbance at 780 nm. The cytocompatibility study of PIN showed 85% cell viability till 1-mg∕ml concentration of PIN. Successful cellular uptake of ligand conjugated PIN by prostate cancer cells (PC3) was also obtained. Both phantom-based and in vitro cell culture results demonstrated that PIN (1) have the great potential to induce local hyperthermia (i.e., temperature increase of 8 to 10°C) in tissue within 5 mm both in radius and in depth; (2) result in improved optical stability, excellent biocompatibility with healthy cells, and a great targeting capability; (3) have the ability to serve as an image contrast agent for deep-tissue imaging in diffuse optical tomography.