Nanonization, which involves formulating the drug powder as nanometer-sized particles, is a known method to improve drug absorption and allow the intravenous administration of insoluble drugs. This study investigated a novel femtosecond (fs) laser technique for the fabrication of nanocrystals in aqueous solution of the insoluble model drug paclitaxel. Two distinct methods of this technology, ablation and fragmentation, were investigated and the influence of laser power, focusing position and treatment time on the particle size, drug concentration, and degradation was studied. The colloidal suspensions were characterized with respect to size, chemical composition, morphology, and polymorphic state. Optimal laser fragmentation conditions generated uniformly sized paclitaxel nanoparticles (<500 nm) with quantifiable degradation, while ablation followed by fragmentation was associated with a larger polydispersity. Laser treatment at higher powers produced smaller particles with larger amount of degradation. The crystalline morphology of the drug was retained upon nanonization, but the anhydrous crystals were converted to a hydrated form, a phenomenon also observed during bead milling. These findings suggest that drug nanocrystals can be produced with fs laser technology using very little drug quantities, which may be an asset for preclinical evaluation of new drug candidates.