Abstract In the work described here, we investigate atomic processes leading to the formation of emission lines within the Interface Region Imaging Spectrograph wavelength range at temperatures near 105 K. We focus on (1) non-equilibrium and (2) density-dependent effects influencing the formation and radiative properties of S iv and O iv. These two effects have significant impacts on spectroscopic diagnostic measurements of quantities associated with the plasma that emission lines from S iv and O iv provide. We demonstrate this by examining nanoflare-based coronal heating to determine what the detectable signatures are in transition region emission. A detailed comparison between predictions from numerical experiments and several sets of observational data is presented to show how one can ascertain when non-equilibrium ionization and/or density-dependent atomic processes are important for diagnosing nanoflare properties, the magnitude of their contribution, and what information can be reliably extracted from the spectral data. Our key findings are the following. (1) The S/O intensity ratio is a powerful diagnostic of non-equilibrium ionization. (2) Non-equilibrium ionization has a strong effect on the observed line intensities even in the case of relatively weak nanoflare heating. (3) The density dependence of atomic rate coefficients is only important when the ion population is out of equilibrium. (4) In the sample of active regions we examined, weak nanoflares coupled with non-equilibrium ionization and density-dependent atomic rates were required to explain the observed properties (e.g., the S/O intensity ratios). (5) Enhanced S/O intensity ratios cannot be due solely to the heating strength and must depend on other processes (e.g., heating frequency, non-Maxwellian distributions).