A peptide-coated nanoparticle that includes a nanocrystal surrounded by a graded shell that is composed of at least two different semiconductor molecules. At least one peptide is attached to the surface of the graded shell to render the nanoparticle biocompatible. The nanocrystal core and graded shell are optionally annealed with ultra violet radiation prior to and/or after attachment of the peptide(s).