Carbon nanodots (CNDs) offer potential applications in photocatalysis, optoelectronics, bio-imaging, and sensing due to their excellent photoluminescence (PL) properties, biocompatibility, aqueous solubility, and easy functionalization. Recent emphasis on CNDs in the selective detection of metal ions is due to the growing concern for human and environmental safety. In this work, two types of fluorescent carbon nanodots (CNDs) are synthesized economically from ethylene diamine (E-CNDs) or urea (U-CNDs) in a single step microwave process. The as-prepared CNDs exhibit excellent PL at an excitation wavelength of 350 nm with a quantum yield of 64% for E-CNDs and 8.4% for U-CNDs with reference to quinine sulfate. Both E-CNDs and U-CNDs demonstrate high selectivity towards Fe (III) ions among different metal ions, by fluorescence quenching in a dose dependent manner. The limit of detection of E-CNDs and U-CNDs is observed to be 18 nM and 30 nM, respectively, in the linear response range of 0-2000 μM with a short response time (seconds). The CNDs detect Fe (III) ions in tap water and serum sample with no spiking and the recovery was ~100% with the Fe (III) samples. Cellular internalization studies confirm the localization of the CNDs and the optical imaging sensing of Fe (III) ions inside living cells. A charge transfer fluorescence quenching mechanism, specifically between the CNDs and Fe (III), is proposed and examined using cyclic voltammetry. The overall characteristics of the E-CNDs provides a potential sensing platform in highly sensitive and selective detection of Fe (III) ions.