Nanocrystalline yttrium oxide doped with the lanthanide ions Sm3+, Dy3+ or Tm3+ with a particle diameter of approximately 10 nm was prepared by propellant synthesis. The Y2O3:Sm3+ nanocrystals showed a visually dominant red emission from the (4)G(5/2) --> H-6(7/2) transition and a strong concentration dependence of both the emission spectra and decay was observed. The decay time of the (4)G(5/2) excited state in the 1 mol% nanocrystalline Y2O3:Sm3+ sample was determined to be longer than in the identically doped bulk (microcrystalline) sample. We have shown that the lifetime of this state in the nanocrystalline material is strongly dependent on the index of refraction of the medium surrounding the nanoparticles and a 0.75 filling factor was obtained. Yellow emission was observed from the Y2O3:Dy3+ nanocrystals from the F-4(9/2) --> H-6(13/2) transition. The decay curves of the F-4(9/2) state deviated from exponentiality and were fitted with the Inokuti-Hirayama model in order to probe the energy transfer processes. The model revealed that a dipole-dipole mechanism was responsible for the interactions and a critical transfer distance (R-0) of 6.05 Angstrom was obtained. Tm3+ doped Y2O3 nanocrystals showed predominantly blue emission from the D-1(2) --> F-3(4) and (1)G(4) --> H-3(6) transitions. Red-to-blue up-conversion was detected following excitation with 656 nm into the F-3(2) state which occurred via a two-photon ESA/ETU process.