Sugarcane bagasse is an abundant biomass waste and a promising carbon source for preparing carbon-based materials such as carbon quantum dots (CQDs). Low quantum yield is a major problem for sugarcane bagasse-based carbon quantum dots. Heteroatom-doped modification is an efficient approach to improve the quantum yield. A facile hydrothermal carbonization method was applied to synthesize the nitrogen-doped carbon quantum dot N-CQDs using urea as the nitrogen source. The synthetic procedure was determined by the single-factor experiments and the response surface methodology (RSM) based on Box–Behnken design (BBD). The optical properties of optimized N-CQD-13 were more excellent than those of undoped CQD. Higher quantum yields (both absolute and relative) were observed in N-CQD-13. Additionally, N-CQD-13 exhibited high stability for long-time storage and excellent pH tolerance in aqueous solutions. N-CQD-13 were applied to detect Fe³⁺ in aqueous solutions with a low detection limit of 0.44 μM. The fluorescence lifetime decay of the N-CQD-13 solutions untreated and treated with Fe³⁺ indicated the probable involvement of a dynamic fluorescence-quenching mechanism. Thus, this work explored a reliable method for the high-quality utilization of bagasse.