CdTe nanocrystals have been successfully fabricated by a mechanical alloying process. X-ray diffraction (XRD) patterns demonstrate that a single-phase CdTe compound with a zinc blende structure has been formed after ball milling elemental Cd and Te mixture powders for 27 h. The large broadening effect for the width of the {111} diffraction peak of uncapped CdTe nanocrystals on smaller size was observed in slowly scanned XRD patterns. The X-ray photoelectron spectrum was used to study the surface of the uncapped CdTe nanocrystals within both core level and valence band regions. The presence of tellurium oxide film on the surface of the uncapped CdTe nanocrystals has been detected in the X-ray photoelectron spectrum of the Te 3d core level, which was comparable to the observed amorphous oxide thin layer on the surface of uncapped CdTe nanocrystals in a high resolution transmission electron microscopy (HRTEM) image. The energy of the valence band maximum for uncapped CdTe powders blue shifts to the higher energy side with smaller particle sizes. In UV-visible optical absorption spectra of the suspension solution containing uncapped CdTe nanocrystals, the absorption peaks were locating within the ultraviolet region, which shifted toward the higher energy side with prolonged ball milling time. Both blue shifts of valence band maximum energy and absorption peaks with decreasing particle size provide a unique pathway to reveal the quantum confinement effect of uncapped CdTe nanocrystals.