Transition-metal tellurides (TMTs) are promising materials for “post-graphene age” nanoelectronics and energy storage applications owing to their industry-standard compatibility, high electron mobility, large spin–orbit coupling (SOC), etc. However, tellurium (Te) having a larger ionic radius (Z= 52) and broader d-bands endows TMTs with semimetallic nature, restricting their application in photonic and optoelectronic domains. In this work, we report the optical properties of the quantum-confined semiconducting phase of cobalt ditelluride (CoTe2) for the first time, exhibiting excellent two-color band photoabsorption attributes covering the UV–visible and near-infrared regions. Furthermore, novel excitonic resonances (X) of size-varying CoTe2nanocrystals and quantum dots (QDs) are indicated by their temperature-dependent emission characteristics, which are attributed to the splitting of band edge states via confinement. On the other hand, the sudden rupture of the large-area CoTe2nanosheets via ultrasonication incorporates Co vacancy-mediated localized trap states within the band gap, which is attributed to the superior room-temperature photoluminescence (PL) quantum yield of QDs and further corroborated using Raman analysis and atomistic density functional theory (DFT) simulations. Most interestingly, the excitonic peak of CoTe2QDs reveals a unique positive-to-negative thermal quenching transition phenomenon, owing to the thermal activation of nonradiative surface trap states. These results introduce an exciting approach for the defect-mediated color-saturated light emission that paves the way for solution-processed telluride-based QD light-emitting diodes.