The attention to rare earth oxide nanoparticles (NPs), including yttrium oxide (Y2O3), has increased in many fields due to their unique structural characteristics and functional properties. The aim of our study was to investigate the mechanisms by which bio-corona formation on Y2O3 NPs affects their environmental fate and toxicity. The Y2O3 NPs induced toxicity to freshwater filter feeder Daphnia magna at particle concentrations of 1 and 10 mg/L, regardless of particle size. Interactions between naturally excreted biomolecules (e.g. protein, lipids, and polysaccharides) derived from D. magna, and the Y2O3 NPs (30–45 nm) resulted in the formation of an eco-corona, which reduced their toxic effects toward D. magna at a particle concentration of 10 mg/L. No effects were observed at lower concentrations or for the other particle sizes investigated. Copper-zinc (Cu-Zn) superoxide dismutase, apolipophorins, and vitellogenin-1 proteins proved to be the most prominent proteins of the adsorbed corona, and possibly a reason for the reduced toxicity of the 30–45 nm Y2O3 NPs toward D. magna.