The luminescence of pure and europium-doped nanocrystalline YVO4 and YP0.95V0.05O4 and the energy transfer processes in such nanoparticles have been studied by temperature dependent luminescence spectroscopy and luminescence lifetime measurements. The results indicate thermally activated energy transfer between adjacent vanadate groups in YVO4 at temperatures above 100 K, but energy transfer to europium seems to take place from direct vanadate neighbors only. In contrast to the luminescence decay of europium, the kinetic of the vanadate luminescence strongly depends on the choice of surface capping and solvent, indicating partial quenching of the vanadate emission at surface sites. The strong competition with energy transfer to surface sites seems to be reason for the absence of energy transfer to europium from distant vanadate groups. The latter explains the low room-temperature quantum yield of 15% of YVO4:Eu colloids.