A series of Er³⁺–Yb³⁺ doped gadolinium molybdate phosphors were synthesized via hydrothermal method with varying Er³⁺ and Yb³⁺ concentrations and their thermal stability, crystal phase formation, particle morphology and photoluminescence properties were explored. The effects of rare earth doping concentration and annealing temperature on upconversion and downconversion properties have been investigated upon 980 nm and 380 nm light excitation and explained with the variation in lifetime of the ⁴S_3/2 level of Er³⁺. The materials were further investigated to look into the effect of Er³⁺-concentration on optical temperature sensing and nano-heating behavior. Temperature sensing measurements were performed by the fluorescence intensity ratio technique using the transitions from the two thermally coupled energy levels (²H_11/2/⁴S_3/2 → ⁴I_15/2) of Er³⁺. The maximum temperature sensitivity was obtained as 0.0105 K⁻¹ (at 450 K), which is among the highest measured sensitivities for luminescence based thermometers. Moreover, the material shows very high thermal gain due to laser irradiation, resulting in a temperature rise from 364 K to 683 K as the excitation power changes from 7.0 to 65 W cm⁻² and defines the present material as a highly sensitive thermographic phosphor. Additionally, the paramagnetic nature and effect of the magnetic field on upconversion properties of this phosphor have also been explored. The thermally-stable, paramagnetic Gd₂Mo₃O₉: Er³⁺/Yb³⁺ phosphor particles seem to be potential candidates for displays, remote temperature sensing, optical heaters, magneto-optic modulators and bio-imaging applications.