Highly transparent Lu2O3 ceramics were prepared by using co‐precipitation combined with vacuum sintering method with ZrO2 as sintering aid. The effect of ZrO2 on densification, transmittance, and microstructure evolution of the Lu2O3 ceramics was carefully studied. It was found that the addition of ZrO2 was very effective in improving densification of Lu2O3. The highest transmittance (at 600 nm) of the 3 at.% ZrO2 doped Lu2O3 ceramic (1.6‐mm thickness) sintered at 1800°C reached 80.1%. Microstructural inhomogeneity was found after vacuum sintering with larger grain sizes at the central. The microstructural inhomogeneity mainly occurred in the final stage of sintering. Doping ZrO2 mitigated microstructural inhomogeneity and decreased markedly the grain size of Lu2O3 ceramics. Raman measurements indicated that the disordered structure was formed due to oxygen vacancy, and the oxygen vacancy concentration at the central was higher than at the peripheral. The oxygen vacancy concentration gradient is the dominant factor governing nonuniform microstructure evolution during vacuum sintering. Furthermore, a uniform microstructure was obtained by the inhibition of oxygen vacancy formation by the Lu2O3/ZrO2 double powder bed.