Y2O3:Er3+ translucent ceramics was fabricated with addition of La(OH)3 nanopowder as a sintering aid. The influence of La(OH)3 addition on the microstructure, transmittance and upconversion luminescence of Y2O3:Er3+ ceramics was investigated in detail. The results show that the ceramics sample with 5 mol % La(OH)3 additives exhibits finer microstructure with fewer pores and higher optical transmittance than others. It was proved that La(OH)3 additives could greatly reduce the porosity and improve the transparency of Y2O3:Er3+ ceramics. By using a 980 nm diode laser as a pumping source, the Y2O3:Er3+ ceramics gave bright visible upconversion luminescence, which was ascribed to the radiative transitions of 2H11/2,4S3/2 →4I15/2 and 4F9/2 →4I15/2 of Er3+ ions, respectively. The possible upconversion mechanism has been proposed accordingly.