We describe several new aspects of light–matter interactions for solids in which interatomic coupling of impurity atoms plays a dominant role in population dynamics. We explore the implications of spatial coherence in such multiatom interactions by introducing a density-matrix theory of cooperative upconversion, focusing on pair systems for which analytic results can be obtained. We predict population pulsations in coherent cooperative upconversion, enhanced quantum efficiency, enhanced energy transfer, and pair-mediated instabilities, not only in cooperative upconversion media without external cavities but in upconversion lasers and conventional lasers in highly doped solids as well. These predictions are compared with rate equation solutions and observations in lasers with inversions sustained by cooperative processes, particularly the 2.8-μm Er laser. Rate equations fail to predict the observed steady-state instabilities of this laser, which are well reproduced by density-matrix theory, furnishing evidence of weak coherent delocalizations in a rare-earth system.