PURPOSE: To evaluate the resolution and sensitivity of XIL imaging using a surface radiance simulation based on optical diffusion and maximum likelihood expectation maximization (MLEM) image reconstruction. XIL imaging seeks to determine the distribution of luminescent nanophosphors, which could be used as nanodosimeters or radiosensitizers. METHODS: The XIL simulation generated a homogeneous slab with optical properties similar to tissue. X-ray activated nanophosphors were placed at 1.0 cm depth in the tissue in concentrations of 10(-4) g/mL in two volumes of 10 mm(3) with varying separations between each other. An analytical optical diffusion model determined the surface radiance from the photon distributions generated at depth in the tissue by the nanophosphors. The simulation then determined the detected luminescent signal collected with a f/1.0 aperture lens and back-illuminated EMCCD camera. The surface radiance was deconvolved using a MLEM algorithm to estimate the nanophosphors distribution and the resolution. To account for both Poisson and Gaussian noise, a shifted Poisson imaging model was used in the deconvolution. The deconvolved distributions were fitted to a Gaussian after radial averaging to measure the full width at half maximum (FWHM) and the peak to peak distance between distributions was measured to determine the resolving power. RESULTS: Simulated surface radiances for doses from 1mGy to 100 cGy were computed. Each image was deconvolved using 1000 iterations. At 1mGy, deconvolution reduced the FWHM of the nanophosphors distribution by 65% and had a resolving power is 3.84 mm. Decreasing the dose from 100 cGy to 1 mGy increased the FWHM by 22% but allowed for a dose reduction of a factor of 1000. CONCLUSION: Deconvolving the detected surface radiance allows for dose reduction while maintaining the resolution of the nanophosphors. It proves to be a useful technique in overcoming the resolution limitations of diffuse optical imaging in tissue. C. S. acknowledges support from the NIH National Institute of General Medical Sciences (Award number R25GM109439, Project Title: University of Chicago Initiative for Maximizing Student Development, IMSD). B. Q. and P. L. acknowledge support from NIH grant R01EB017293.