Employing absorption, excitation and luminescence spectroscopy in a wide spectral range, the upconversion processes are investigated in Er:LiNbO3 at low temperature. From the detailed analysis of the spectroscopic data and the power dependence of the upconverted intensity, excited state absorption and energy transfer between excited Er3+ ions are found to be the important mechanisms. Structure in the Stark substate absorption suggests the Er3+ ions occupy several different but well defined lattice sites for which the local (C-3) symmetry is slightly perturbed, presumably by charge compensating defects. Site-selective measurements allow one to determine the (4)l(15/2) ground state splittings for two of these sites. The observed energy transfer suggests the existence of interacting pairs of Er3+ ions.