Rare earth (RE) doped yttria sesquioxide has been widely used as host materials for upconversion (UC) phosphors due to their high refractive index, wide band gap, and high melting point. Meanwhile, while fluoride matrices with low phonon cutoff energies exhibit stronger UC emissions, RE-doped oxides exhibit better thermal stability and higher thermal sensitivity when applied as optical temperature sensors. In this work, Sc3+ is substituted in RE-doped Y2O3 lattices to generate smaller cation sites, enhancing the crystal field and modifying the allowed optical transitions. Er3+ is used as a photoluminescent probe to study the effect of site position and symmetry on the UC performance. In comparison with the traditional hydrothermal method, Sc3+ is successfully incorporated into the Y2O3 lattice via the co-precipitation/molten salt method without segregating observed. The Judd–Ofelt analysis was applied to determine the local symmetry and efficiency changes. Sc was found to be able to improve the luminescence performances of Er in Y2–xScxO3 (YScO) hosts by adjusting the local symmetry level around the luminescent sites. The local symmetry level was reduced with less than 30 mol % of Sc doping concentration based on the changes in Ω2 values. Meanwhile, the YScO oxide was found to significantly improve the luminescence intensity and red-to-green ratio at a lower Yb3+ concentration (5 mol %) instead of a higher concentration (20 mol %) commonly used. This was attributed to an increased energy transfer between the closer Yb3+–Er3+ pairs. Overall, this work allows the spatial occupancy of luminescence centers in the metal oxide host materials to optimize the UC luminescence performance and develop a high-efficiency oxide material for high-temperature applications such as optical thermometry.