Chitosan (CHIT), a natural biopolymer, has established its applicability in numerous studies including, tissue scaffolds, topical antimicrobial agents, glucose biosensors and drug delivery platforms. Among these applications, biosensors utilizing CHIT has been championed due its excellent film-forming ability, biocompatibility, good adhesion, non-toxicity, and susceptibility to chemical modification due to the presence of plentiful amino groups and hydroxyl groups. The challenge in development of many biosensing materials is that they should offer robust and tunable characteristics (fluorescence, magnetic, thermal, etc.) while remaining biocompatible. In this work, a facile method was developed to synthesize biocompatible hetero-nanoparticles which inherently display multifunctionality based on a few interchangeable components. As an example, we present a system composed of rare earth metal oxide (REMO) nanoparticles, Er doped Y2O3, with the attachment of gold nanostructures using CHIT. The resulting REMO@CHIT@Au0 hybrid nanoparticles are capable of displaying tunable optical properties due to the surface plasmon resonance of the gold nanoparticles useful to photoacoustic applications. An overview of the nanostructure components are given followed by morphological and spectroscopic analyses. The results of the characterizations are the focus of our future work towards the applicability of these systems to biological sensing, detection and contrast agents.