Yttrium oxide nanopowder was prepared by a novel technique using an alginate biopolymer as a precursor. The technique is based on thermal decomposition of an yttrium alginate gel, which is produced in the form of beads by ionic gelation between the yttrium solution and sodium alginate. The effect of post-annealing temperature on the particle size of the nanocrystals was investigated at various temperatures. The products were characterized using X-ray diffraction, scanning electron microscopy, and atomic force microscopy. The size of the nanocrystalline Y2O3 particles varied from 22.7 to 38.7nm, depending on the annealing temperature and time. The grain size distribution (GSD) was also determined. The GSD became more non-symmetrical as the annealing temperature increased, and the width of the distributions for the powders produced using the alginate method was less affected by heat treatment. This alginate method was compared with the conventional glycine combustion method, on the basis of particle size. The particles obtained using the proposed technique were smaller than those obtained using the combustion method. Alginate-assisted thermal decomposition is therefore an easy and cost-effective method for preparing nanosized Y2O3 crystals.