We studied the dependence of morphology and luminosity of the SDSS galaxies on the environmental factors. The environmental factors considered include the local density due to the nearest neighbor galaxy ρn, morphology of the nearest neighbor, and the large-scale background density. We found the local environment set up by the nearest neighbor galaxy gives strong effects on the galaxy morphology. The probability for a galaxy to have an early morphological type critically depends on whether or not ρn is above the virialization density. We conclude that the well-known morphology-density relation is basically due to the interactions between galaxy pairs. Dependence of galaxy morphology on the large-scale density is found only because there is a statistical correlation between the average pair separation and the large-scale background density. We also found that galaxy luminosity depends on ρn, and that, when the large-scale density is fixed, more isolated galaxies are more likely to be recent merger products. We propose a scenario that a series of morphology and luminosity transformation occur through a series of distant/close interactions and mergers, which results in the morphology-luminosity-local density relation.