In this study, Er-doped CoAl2O4 nanocrystals (NCs) were synthesized via co-precipitation. All the NCs were crystallized in the form of a single phase with a spinel structure and Er3+ ions replaced Al3+ ions in the formation of the CoAl2-xErxO4 alloy structure. The optical characteristics of the Er3+ ion-doped CoAl2O4 NCs were thoroughly investigated by analyzing both the UV-VIS and photoluminescence spectra, using the Judd-Ofelt theory. The effect of Er doping content on the luminescent properties of the CoAl2O4 pigment (using lasers emitting at wavelengths of 413 and 978 nm) has been studied. The values of Judd-Oflet intensity parameters (Ω2, Ω4, and Ω6) were determined from the absorption spectra using the least square fitting method. The J-O parameters were calculated and compared with those of other host materials; the values of the Ω2, Ω4, and Ω6 parameters decreased with an increase in Er concentration. This suggests that the rigidity and local symmetry of the host materials become weaker as the concentration of Er3+ ions increases. The highest value of the Ω2 parameter, when compared with Ω4 and Ω6, suggests that the vibrational frequencies in the given samples are relatively low. The upconversion fluorescence phenomenon was observed and explained in detail under an excitation wavelength of 978 nm when the excitation power was varied.