In this article, the microstructure and photoluminescence (PL) properties of Nd-doped silicon-rich silicon oxide (SRSO) are reported as a function of the annealing temperature and the Nd concentration. The thin films, which were grown on Si substrates by reactive magnetron co-sputtering, contain the same Si excess as determined by Rutherford backscattering spectrometry. Fourier transform infrared (FTIR) spectra show that a phase separation occurs during the annealing because of the condensation of the Si excess resulting in the formation of silicon nanoparticles (Si-np) as detected by high-resolution transmission electron microscopy and X-ray diffraction (XRD) measurements. Under non-resonant excitation at 488 nm, our Nd-doped SRSO films simultaneously exhibited PL from Si-np and Nd3+ demonstrating the efficient energy transfer between Si-np and Nd3+ and the sensitizing effect of Si-np. Upon increasing the Nd concentration from 0.08 to 4.9 at.%, our samples revealed a progressive quenching of the Nd3+ PL which can be correlated with the concomitant increase of disorder within the host matrix as shown by FTIR experiments. Moreover, the presence of Nd-oxide nanocrystals in the highest Nd-doped sample was established by XRD. It is, therefore, suggested that the Nd clustering, as well as disorder, are responsible for the concentration quenching of the PL of Nd3+.