Oil sands drilling frequently contaminates water-based xanthan gels with highly viscous asphaltenes, collapsing their three-dimensional network and causing barite sag, high fluid loss and poor cuttings transport. Nitrogen-functionalized carbon quantum dots (N-CQDs) were hydrothermally synthesised from citric acid and 1-hexadecylamine and characterised by means of FT-IR, TEM and TGA. The concentration-dependent influence of N-CQDs (0–1.2 wt%) on gel viscoelasticity, microstructure and filtration properties was evaluated through rheometry, API and fluid-loss tests. At 0.01 wt% N-CQDs, the viscosity of the adsorbed oil phase dropped by 50% and the mean droplet diameter decreased from 247.7 µm to <100 µm. Consequently, the xanthan gel exhibited a significant enhancement in its mechanical strength and fluid loss performance. Wax-crystal growth was simultaneously inhibited, lowering the pour point by 6 °C. N-CQDs act as nanospacers that disrupt π-stacking of asphaltenes and hydrogen-bond to the polymer backbone, thereby restoring gel strength and sealing capacity. The work provides a sustainable, low-toxicity route to rejuvenate gel-based drilling fluids contaminated by heavy oil and facilitates their reuse in oil sands reservoirs.