Highly luminescent nanoparticles, such as, trivalent erbium-doped yttrium-oxide, Er3+:Y2O3, are expected to have a wide range of applications, including imaging, range finding, flash lidar, and other remote-sensing possibilities as well as medical applications. These particles are synthesized by the precipitation from a homogeneous solution of the metal ions and urea at elevated temperatures. The morphology of the calcinated materials, revealed through SEM, shows uniformly spherical aggregates 200 nm or less depending on the ratio of the metal ions in the initial solution. Room temperature optical absorption and emission spectra show that the trivalent erbium ions in Er3+:Y2O3 nanocrystals possess sharp absorption lines and strong emission in near infrared region that are characteristic of Er 3+:Y2O3 grown as large single crystals. Low temperature (8 K) spectra obtained from these particles were analyzed in detail for the crystal-field splitting of the 2S+1LJ multiplet manifolds of Er3+(4f11) including the ground-state manifold 4I15/2, and excited manifolds 4I9/2, 4F9/2, 4S3/2, 2H11/2, 4F7/2, 4F5/2, and 4F3/2. Fluorescence lifetimes and results from an analysis of the intensities of manifold-to-manifold transitions are also reported. Similarity of the nanocrystalline and large single crystal Er3+:Y2O3, we propose that the simple, inexpensive method described in this study will lead to further investigation of these nanocrystals for their optical properties, especially in the near infrared region of the spectrum.