The investigation on the oxidation behaviour of Si1−xGex alloys (x=0.05, 0.15 and 0.25) is carried out. It is found for the first time that on the oxide film a germanium nano-cap with a thickness of 1.8–2.8nm and a few Ge nanoparticles with diameters ranging from 5.5 nm to 10 nm are formed by the low-temperature laser-assisted dry oxidation of Si1−xGex substrate. A new scanning method on the decline cross-section of the multiple-layer sample is adopted to measure the layer thickness and the composition. Some new peaks in photoluminescence (PL) spectra are discovered, which could be related to the nano-cap and the nano-particles of germanium. A suitable model and several new calculating formulae with the unrestricted Hartree–Fock–Roothaan (UHFR) method and quantum confinement analysis are proposed to interpret the PL spectra and the nano-structure mechanism in the oxide.