We report quenching and chemical degradation of polymer-coated quantum dots by reactive oxygen species (ROS), a group of oxygen-containing molecules that are produced by cellular metabolism and are involved in both normal physiological and disease processes such as oxidative signaling, cancer, and atherosclerosis. A major new finding is that hypochlorous acid (HOCl) in its neutral form is especially potent in degrading encapsulated QDs, due to its small size, neutral charge, long half-life, and fast reaction kinetics under physiologic conditions. Thus, small and neutral molecules such as HOCl and hydrogen peroxide (H2O2) are believed to diffuse across the polymer coating layer, leading to chemical oxidation of sulfur or selenium atoms on the QD surface. This "etching" process first generates lattice structural defects (which cause fluorescence quenching) and then produces soluble metal (e.g., cadmium and zinc) and chalcogenide (e.g., sulfur and selenium) species. We also find that significant fluorescence quenching occurs before QD dissolution and that localized surface defects can be repaired or "annealed" by UV light illumination. These results have important implications regarding the long-term fate and potential toxicity of semiconductor nanocrystals in vivo.