Core-shell-structured nanoalloy particles with an Al-dominated interior covered by few Yb monolayers have been fabricated using a vapor-aggregation method involving magnetron sputtering. The radially segregated structure of the Yb-Al nanoparticles has been disclosed by “on-the-fly” photoelectron spectroscopy monitoring of the nanoparticle beam in Yb 4f and Al 2p electron binding energy regions. Both, the binding energy values and the electron microscopy images taken on the deposited nanoparticles, allow estimating their dimensions to be in the 5–10 nm range. The photoelectron spectroscopy results suggest that in these nanoparticles no trivalent Yb – the typical case for the macroscopic Yb-Al alloy – is present. The oxidation of preformed Yb-Al nanoparticles was successfully attempted, leading to the appearance of divalent Yb surface oxide – in contrast to the bulk macroscopic Yb which is trivalent in the oxide. Our results suggest that at intermediate oxygen exposures “sandwich-like” nanoparticles of YbO/Yb/Al were synthesized. At higher O2 exposures, the oxygen seems to penetrate all the way to the Yb-Al interface. The results of the present study have to be considered when photonic applications of Yb-doped garnet nanoparticles are planned.