Loading of HAuCl4 in poly(amido amine) G4 dendrimers having poly(ethylene glycol) (PEG) grafts at all chain ends and subsequent reduction with NaBH4 yielded PEG-modified dendrimers encapsulating gold nanoparticles (Au NPs) of ca. 2 nm diameter. The Au NPs held in the dendrimers were stable in aqueous solutions and dissolved readily, even after freeze-drying. Despite their small particle size, the heat-generating ability of Au NPs held in the dendrimer was comparable to that of widely used Au NPs with ca. 11 nm diameter under visible light irradiation. The observed excellent colloidal stability, high heat-generating ability and their biocompatible surface confirm that the PEG-modified dendrimers encapsulating Au NPs are a promising tool for photothermal therapy and imaging.