Transparent ceramics based on ytterbium oxide have been successfully produced by vacuum sintering of self-propagating high-temperature synthesized powders with use of a La2O3 sintering aid. Phase composition and microstructure of the initial powders were studied by X-ray diffraction analysis and scanning electron microscopy. It was found that addition of 5 mol.% of La2O3 does not cause formation of secondary phases in the Yb2O3 powders. The 4% La:Yb2O3 ceramics showed the best in-line transmittance of 73% at a wavelength of 2 μm among the studied samples. Dependence of the Verdet constant on wavelength was investigated in the range of 0.4–2 μm. The most promising finding is use of the obtained material as Faraday isolators in the wavelength region of ~1.5 μm, where there are no absorption bands, and the Verdet constant is 8.6 rad/(T*m).