In this paper, laser radiation action on Nd3+:Y2O3 targets having the absorption 13–1.7 × 103 cm−1 is studied. During the experiment, we used the ytterbium fiber laser, which can operate both in continuous and pulse mode with the pulse duration time 0.1–1.9 ms. Laser radiation power was 200–700 W, and power density was (0.2–1.2) × 106 W/cm2. We found out the spike behavior of laser plume luminescence, large statistical variability of delay time of laser plume appearance, and spallation of front surface of the target. Aiming to explain these facts, we developed the numeric model of radiation impact on substance with non-uniform absorption coefficient. We found out the optimal laser oblation mode for nanopowder production. At laser power of 700 W, we received Nd3+:Y2O3 nanopowder with productivity up to 27 g/h. Average size of nanoparticles is 13.6 nm, and their phase is monoclinic.