Polymer blend hybrid nanocomposites are of great importance for future optoelectronic applications. This paper presents the preparation of new polymer blend hybrid nanocomposites based on PVC/PVP modified with Er2O3 nanoparticles. A low-cost solution casting method has been used to prepare the polymer nanocomposites at 0.0, 0.1, 0.3 and 0.6 wt% of Er2O3. X-ray diffraction (XRD), Fourier transform infrared (FTIR), Raman spectroscopy, and environmental scanning electron microscopy (ESEM) measurements have all been used to examine the impact of a varying wt% of Er2O3 on the structural and optical characteristics of PVP/PVC polymer blends. The PVC/PVP polymer blend and Er2O3 nanoparticles showed a strong interaction, which was validated by XRD, FTIR, and Raman spectrum investigations. The SEM micrographs showed a remarkable complexation among the components of the polymer nanocomposites. The activation energies for thermal decomposition of PVC/PVP doped with different Er2O3 concentrations were less than that of the pure polymer film. The linear and nonlinear refractive indexes, dispersion energy, optical susceptibility and the energy gap values were found to be Er2O3 concentration-dependent. With an increase in Er2O3 concentration to 0.1 and 0.3 wt%, the dispersion energy and nonlinear refractive index improved, and thereafter decreased when the concentration was further increased to 0.6For the film doped with 0.1 wt% Er2O3, the optical band gap (Eopt) of the composite film enhanced by about 13%. The optical absorption measurements revealed clear improvements with the addition of erbium oxide. Higher refractive index values of PVC/PVP/Er2O3 films qualify the polymer blend as a cladding for electro-optic modulators. Our results indicated that the PVC/PVP/Er2O3 polymer films could be suitable for optoelectronic space applications.