The Yb:Lu2O3 precursor made up of spherical particles was synthesized through the co-precipitation method in the water/ethanol solvent. The 5 at% Yb:Lu2O3 powder is in the cubic phase after calcination at 1100 °C for 4 h. The powder also consists of spherical nanoparticles with the average particle and grain sizes of 96 and 49 nm, respectively. The average grain size of the pre-sintered ceramic sample is 526 nm and that of the sample by hot isostatic pressing grows to 612 nm. The 1.0 mm-thick sample has an in-line transmittance of 81.6% (theoretical value of 82.2%) at 1100 nm. The largest absorption cross-section at 976 nm is 0.96×10−20 cm2 with the emission cross-section at 1033 nm of 0.92×10−20 cm2 and the gain cross sections are calculated with the smallest population inversion parameter β of 0.059. The highest slope efficiency of 68.7% with the optical efficiency of 65.1% is obtained at 1033.3 nm in quasi-continuous wave (QCW) pumping. In the case of continuous wave (CW) pumping, the highest slope efficiency is 61.0% with the optical efficiency of 54.1%. The obtained laser performance indicates that Yb:Lu2O3 ceramics have excellent resistance to thermal load stresses, which shows great potential in high-power solid-state laser applications.