In this work, Er3+ substituted bismuth sodium titanate ceramics with the chemical composition Bi0.5-xErxNa0.5TiO3 (x = 0.00, 0.01, 0.02, 0.03, 0.04, and 0.05) were synthesized using conventional solid state technique. The influence of Er3+ ions on structural, optical, ferroelectric, and temperature sensing properties have been investigated. The prepared ceramic powders were initially heated at a calcination temperature 850 °C to form single phase Bi0.5-xErxNa0.5TiO3 and finally sintered at temperature 1050 °C. Formation of pure phase compositions with rhombohedral crystal structure is confirmed through X-ray diffraction studies. The typical FTIR bands near 540, 860, 910 cm−1 confirmed the presence of Ti–O stretching of octahedral groups in the perovskite structure. The decent squared shaped saturated P-E hysteresis are obtained under an electric field of 60 ≤ E ≤ 70 kV/cm, and the loops become slimmer at higher Er3+ concentrations (x = 0.04). The efficiency of energy storage density increases with Er3+ doping and an improved recoverable energy storage (Wr = 2.73 J/cm3) and a higher efficiency (η = 70.77%) are obtained for Er content, x = 0.04. The photoluminescence spectra were recorded at two excitation wavelengths (488 nm and 980 nm). Two distinct green emission bands (529 nm and 550 nm) and one weak red emission band (670 nm) were observed at both excitation wavelengths. Increasing Er3+ content beyond (x > 0.03) leads to significant quenching of light emission due to cross relaxation process and non-radiative relaxations. The pump power dependency revealed that two photons were involved in the light upconversion process. The time-resolved fluorescence spectroscopy confirmed the decrease in lifetime with increasing Er3+ concentration. The absolute and relative sensitivity of the prepared ceramic at Er3+ concentration (x = 0.03) were found to be 0.47% K−1 at 523 K and 1.1% K−1 at 303 K, respectively. These optical and electrical properties open the possibility of realizing multifunctionality in the field of energy storage and opto-electronic applications.