As a promising material for Faraday isolator used in visible and infrared range, Dy2O3 ceramics with the average grain size of ∼800 nm and the in-line transmittance of 79.3% at 2000 nm and 70.0% at 633 nm were successfully fabricated. The Dy2O3 wet-chemically precipitated powders were densified in two steps consisting of vacuum pre-sintering and hot isostatic pressing (HIP) post-treatment. The precipitated precursor was calcined at 1150–1250 °C for 4 h in air to obtain Dy2O3 powders. The influences of calcination temperature on the morphology and sintering behavior of Dy2O3 powders were studied. The optical quality and microstructure of Dy2O3 ceramics with different pre-sintering temperatures were investigated. The Verdet constant of Dy2O3 ceramics at 633 nm is −322.1 ± 3.5 rad T−1 m−1, about 2.4 times that of commercial Tb3Ga5O12 crystals. Transparent Dy2O3 ceramics with high Verdet constant and suitable transparent windows present a prospective application for Faraday rotators.