Rare-earth-doped transparent sesquioxide laser ceramics enable engineering of their gain bandwidths via solid-solution compositions exhibiting a strong inhomogeneous spectral line broadening. We report on a detailed spectroscopic study and the first mid-infrared laser operation of Erbium-doped yttria-scandia, (ScxY1−x)2O3, ceramics fabricated by vacuum sintering at 1750 °C from laser-ablated nanoparticles. The effect of the Sc fraction on the spectral and kinetic properties of Er3+ emission around 2.8 μm owing to the 4I11/2 → 4I13/2 is revealed. The inhomogeneous spectral line broadening leading to merging of individual Stark sub-levels of Er3+ multiplets is evidenced by low-temperature spectroscopy. An original method of quantifying the distribution of dopant Er3+ ions over C2 and C3i symmetry sites in the cubic bixbyite structure is suggested based on the transition probabilities derived by the Judd-Ofelt theory. In the parent Er:Y2O3 ceramic, the Er3+ ions nearly follow the ideal distribution with 3/4 of ions residing in C2 sites, and Sc addition skews it in favor of C3i sites. A continuous-wave Er:(Sc,Y)2O3 ceramic laser generated 312 mW at 2716 nm with a slope efficiency of 18.6% and a laser threshold of 128 mW.