The fabrication of Gd2O3‐MgO nanocomposite optical ceramics via hot‐pressing using sol‐gel derived cubic‐Gd2O3 and MgO nanopowders was investigated. The precursor powder calcined at 600°C had an average particle size of 12 nm. The effects of hot‐pressing temperature on constituent phases, microstructure, mid‐infrared transmittance, and microhardness were studied. The crystallographic modifications of Gd2O3 phase varied with the increase in sintering temperature from 1250 to 1350°C. The monoclinic‐Gd2O3 phase was retained for the composite sintered at 1350°C and the sample had an average grain size of 90 nm, excellent transmission (80.4%‐84.8%) over 3‐6 μm wavelength range, and enhanced hardness value of 14.1 GPa.