Here we report the size reduction and effects on nitrogen-vacancy centres in nanodiamonds by air oxidation using a combined atomic force and confocal microscope. The average height reduction of individual crystals, as measured by atomic force microscopy, was 10 ± 1 nm/h at 600 °C, 4 ± 1 nm/h at 550 °C, and less than 1 nm/h at 500 °C from air oxidation at atmospheric pressure. The oxidation process modified the surface including removal of non-diamond carbon and organic material which also led to a decrease in background fluorescence. During the course of the nanodiamond size reduction, we observed the annihilation of nitrogen-vacancy centres which provided important insight into the behaviour of colour centres in small crystals. In these unirradiated samples, the smallest nanodiamond still hosting a stable nitrogen-vacancy centre observed was 8 nm.