Single crystals of yttria‐stabilized zirconia (YSZ) doped with various concentrations of Sm2O3 were synthesized by the optical floating zone method, and their structure and spectroscopic properties characterized using powder X‐ray diffraction (XRD), optical absorption, and luminescence measurements. XRD showed that the cubic phase of ZrO2 was stabilized by addition of Y2O3 and a series of absorption peaks characteristic of Sm3+ was detected by UV‐visible absorption spectroscopy. Three phenomenological J‐O oscillator strength parameters Ωt (t = 2, 4, 6) were calculated to evaluate the local structure and bonding in the vicinity of the Sm3+ for the 0.75 mol% Sm2O3: YSZ sample. These were in order of Ω2 < Ω4 < Ω6 with values of Ω2 = 5.46 × 10−20 cm2, Ω4 = 10.70 × 10−20 cm2, and Ω6 = 12.67 × 10−20 cm2, and indicate a relatively high symmetry and low covalent character for the Sm‐O bond at the Sm3+ sites in the YSZ matrix. Photoluminescence spectra recorded under an excitation of 404 nm showed four emission bands centered at 571 nm, 621 nm, 652 nm, and 716 nm corresponding to the transitions 4G5/2→6Hj (j = 5/2, 7/2, 9/2, 11/2). The transition probability, lifetime, and branching ratio obtained from the emission spectrum of the 0.75 mol% Sm2O3: YSZ crystal showed that YSZ is a potential host for Sm3+ to achieve a reddish‐orange laser output, and the Sm3+‐modified YSZ crystals have a possible use in reddish‐orange laser and lighting devices.