The development of novel nanocomposites containing upconverting luminescent materials and magnetic nanoparticles have shown their potential applications in the hyperthermia and bio-imaging. In this regards, the search for new class of nanocomposites, which is responsive to magnetic and optical guiding in medical fields are in demand. To resolve the problem, bifunctional upconverting Y2O3: Er3+-Yb3+@γ-Fe2O3 nanocomposites have been synthesized through ball milling approach. Nanocomposites are able to upconvert NIR photons into overall yellowish-white colour broadband visible emission in 400–900 nm wavelength range at room temperature under 980 nm CW laser diode excitation. Thermal conductivity study shows an improved phonon scattering process in the Y2O3: Er3+-Yb3+@γ-Fe2O3 (∼ 0.0681 W/mK) nanocomposites as compared to Y2O3: Er3+-Yb3+ (∼ 0.0750 W/mK) phosphors due to grain boundary expansion. Broadband UC emission is originated via Yb-Yb dimer formation and heat associated continuum emission is reported due to photon avalanche (∼ 6 NIR photons) phenomenon. Besides, it also exhibits the attraction ability towards the magnet. Therefore, the developed nanocomposites can be used in converting the NIR radiation into broadband upconversion emission and luminescence imaging applications.