Nanoparticulate Y2 O3 :Eu2 O3 with a small, uniform particle size and a well-defined composition was synthesized using a low temperature microwave plasma process. The structural evolution and the luminescence properties were studied in different states of annealing and Eu2 O3 addition using X-ray diffraction, transmission electron microscopy, and UV-photoluminescence spectroscopy. As synthesized, the samples were amorphous and showed only weak luminescence. Subsequent annealing steps from 500°C to 800°C lead to the formation and growth of cubic Y2 O3 :Eu2 O3 nanocrystals (5–20 nm) and a concomitant strong increase of the luminescence yield already at small grain sizes in the range of 10 nm. No self-quenching effects were observed up to 11 mol% Eu2 O3 .