YAG:Ce3+ nanocrystals are promising bio-labeling materials due to their low toxicity and high photostability. It is in demand to efficiently synthesize YAG:Ce3+ nanocrystals of a small size. Pulse laser ablation is an approach to produce nanoparticles directly from bulk materials with the advantages of smaller particle sizes and lower production costs. Here, we present the synthesis of YAG:Ce3+ nanocrystals from bulk crystal using the femtosecond laser ablation method in liquid. Comparing the liquid environment, we demonstrated that the lauryl dimethylaminoacetic acid betain (LDA) aqueous solution is preferred for the formation of smaller-sized YAG:Ce3+ nanoparticles than deionized water due to the attractiveness between the LDA molecules and the YAG:Ce3+ nanoparticles. We also verified that the high laser repetition rate had no effect on the average size of YAG:Ce3+ nanocrystals, where the fragmentation process is saturated under a high laser repetition rate. This study provides a simple and effective method to synthesize small size YAG:Ce3+ nanoparticles by femtosecond laser ablation in liquid.