Photoluminescence enhancement, photoetching and photostability of CdS nanocrystals were investigated under light irradiation. Strongly photoluminescent nanocrystals were obtained when the nanocrystal was weakly photoexcited in an aqueous solution at pH = 11 in the presence of oxygen. With the support of XPS measurements, the following photoactivation mechanism is proposed: Cd²⁺ ions are released from the CdS surface owing to slow photocorrosion in the presence of oxygen, and Cd–OH bond formation occurs on the CdS surface under the alkaline conditions, removing the surface trap states. The wavelength of the irradiating light and the pH of the solution were determined as key parameters for nanocrystal surface modification. For the stability measurements the nanocrystals were extracted with an ammonium salt in a non-polar solvent. The photoluminescence quantum yield for the nanocrystals in the non-polar phase reached approximately 30%. The extracted nanocrystals were remarkably stable even under UV light irradiation, and the photoluminescence intensity was maintained for several months.