Surface modification with organic dye molecules is a useful strategy to manipulate the optical properties of lanthanide-doped nanoparticles (LnNPs). It enables energy transfer between dyes and LnNPs, which provides unprecedented possibilities to gain new optical phenomena from the dye-LnNPs composite systems. This has led to a wide range of emerging applications, such as biosensing, drug delivery, gene targeting, information storage, and photon energy conversion. Herein, the mechanism of energy transfer and the structural-dependent energy-transfer properties in dye-coupled LnNPs are reviewed. The design strategies for achieving effective dye-LnNP functionalization are presented. Recent advances in these composite nanomaterials in biomedicine and energy conversion applications are highlighted.