We report development of ytterbium doped silica fiber with nanostructured core for laser applications. We study influence of non-continuous distributed Yb dopants on gain, beam quality, and fiber laser performance. The fiber core is composed of over 43 thousand nanorods with a central part doped with Yb. The diameter of each nanorod is 72 nm. With this method we obtained a flat refractive index profile with uniformity of 1.3 × 10−4 refractive index unit (RIU) despite the non-uniformity of 1.2 × 10−3 RIU in Yb doped preform rods used for the fiber development. We demonstrate a nanostructured core single-mode fiber laser with 61.8% of slope efficiency, and extremely low numerical aperture 0.027 of generated mode.