Ligand exchange reactions of 1.5-nm triphenylphosphine-stabilized nanoparticles with omega-functionalized thiols provides a versatile approach to functionalized, 1.5-nm gold nanoparticles from a single precursor. We describe the broad scope of this method and the first mechanistic investigation of thiol-for-phosphine ligand exchanges. The method is convenient and practical and tolerates a surprisingly wide variety of technologically important functional groups while producing very stable nanoparticles that essentially preserve the small core size and size dispersity of the precursor particle. The mechanistic studies reveal a novel three-stage mechanism that can be used to control the extent of ligand exchange. During the first stage of the exchange, AuCl(PPh3) is liberated, followed by replacement of the remaining phosphine ligands as PPh3 (assisted by gold complexes in solution). The final stage involves completion and reorganization of the thiol-based ligand shell.