It is of scientific importance to obtain graphene quantum dots (GQDs) with narrow‐size distribution in order to unveil their size‐dependent structural and optical properties, thereby further to explore the energy band diagram of GQDs. Here, a soft‐template microwave‐assisted hydrothermal method to prepare GQDs with diameters less than 5 nm ± 0.55 nm is reported. The size‐dependent photoluminescence (PL) quantum yield (QY) decay lifetime and electron energy loss spectroscopy (EELS) of the GQDs are studied systematically. The QY of the GQDs with an average diameter of 2 nm is the highest (15%) among all the samples investigated and the QY decreases with increasing diameter of the GQDs. The size‐dependence of the PL decay lifetime is also observed. The result suggests that spatial confinement effects related to radiative relaxation play an important role in the size‐dependent decay lifetime. A realistic energy band diagram of the GQDs is deduced from the experimental results.