There is a growing interest for smart coatings that can be integrated into turbine engines for in-situ temperature measurements or health monitoring. The addition of rare-earth dopants into standard thermal barrier ceramic top coat materials is used to obtain luminescent coatings that enable spectral measurements, for real-time temperature or health monitoring. The thermomechanical performance and durability of such novel coating compositions in extreme environments still remains to be evaluated. Consequently, the ability to manufacture sensor coatings which present suitable thermal properties needs to be demonstrated. For this study, highly luminescent erbium and europium doped yttria-stabilized zirconia and state-of-the-art yttria-stabilized zirconia coatings manufactured by air plasma spray were characterized to determine the effects of the embedded rare-earth dopants on coating internal strain and stress and to quantify and compare their high temperature response using synchrotron X-ray diffraction. In-situ depth-resolved strain measurements were performed at 15 μm intervals along the depth of the coatings to evaluate materials response at key locations, specifically at layer interfaces. In-plane stress was calculated for the coatings and a finite element model was implemented to supplement the results and enable further predictions. The results show that the sensor coatings that were manufactured in this work revealed only minor variations in the strain response of sensor coatings under a typical thermal cycle and especially at temperatures closer to that of gas turbine operating conditions, compared to state-of-the-art coatings. This work demonstrates the viability of manufacturing rare-earth doped yttria-stabilized zirconia coatings that provide beneficial spectroscopic monitoring capabilities while having minimal impact on the thermomechanical response of the thermal barrier coatings.