A compact naphthalenediimide (NDI)–2,2,6,6‐tetramethylpiperidinyloxy (TEMPO) dyad has been prepared with the aim of studying radical‐enhanced intersystem crossing (EISC) and the formation of high spin states as well as electron spin polarization (ESP) dynamics. Compared with the previously reported radical–chromophore dyads, the present system shows a very high triplet state quantum yield (ΦT=74 %), a long‐lived triplet state (τT=8.7 μs), fast EISC (1/kEISC=338 ps), and absorption in the red spectral region. Time‐resolved electron paramagnetic resonance (TREPR) spectroscopy showed that, upon photoexcitation in fluid solution at room temperature, the D0 state of the TEMPO moiety produces strong emissive (E) polarization owing to the quenching of the excited singlet state of NDI by the radical moiety (electron exchange J>0). The emissive polarization then inverts into absorptive (A) polarization within about 3 μs, and then relaxes to a thermal equilibrium while quenching the triplet state of NDI. The formation and decay of the quartet state were also observed. The dyad was used as a three‐spin triplet photosensitizer for triplet–triplet annihilation upconversion (quantum yield ΦUC=2.6 %). Remarkably, when encapsulated into liposomes, the red‐light‐absorbing dyad–liposomes show good biocompatibility and excellent photodynamic therapy efficiency (phototoxicity EC50=3.22 μm), and therefore is a promising candidate for future less toxic and multifunctional photodynamic therapeutic reagents.