The synthesis of water-soluble near-infrared (NIR)-emitting quantum dots (QDs) has recently received extensive attention for non-invasive detection of biological information in living subjects. Highly fluorescent CdTeS alloyed QDs for biological application are introduced in this paper. QDs were synthesized by a hydrothermal method and coated with N-acetyl-l-cysteine (NAC) as both bioactive ligand and sulfur source for biocompatibility and biological stability. The optical properties, morphology and structure of CdTeS alloyed QDs were characterized. The in vitro and in vivo toxicity was intensively investigated. Furthermore, the dynamics and bio-distribution of CdTeS alloyed QDs on living mice were studied. To explore biomedical application, folate-polyethylene glycol (FA-PEG) was used to decorate the CdTeS alloyed QDs (FP-CdTeS QDs) for targeted imaging of tumors over-expressing the folate receptor (FR). The tumor targeting capability of FP-CdTeS QDs on tumor bearing nude mice was demonstrated. The results showed that the prepared CdTeS QDs have excellent optical properties and low toxicity, which makes them an ideal inorganic material for biomedical imaging. In addition, the folate-PEG conjugated NIR-QDs displayed good biocompatibility as well as excellent sensitivity and specificity for optical imaging of tumors which can extend the application of CdTeS QDs.