The structure and luminescent characteristics of partially yttria-stabilized zirconia (PSZ) doped with Nd3+ ions were investigated. Transmission electron microscopy (TEM) data for PSZ crystals containing 2.8mol.% and 3.7mol.% Y2O3 doped with Nd2O3 (0.04, 0.22 and 0.34mol.%) and containing 2.0mol.% Y2O3 doped with 0.8mol.% Nd2O3 indicated the presence of a nanosize twin domain structure. This structure becomes more homogeneous and dispersed as the total concentrations of the stabilizing oxides (Y2O3 and Nd2O3) increases.A comparison of the luminescence spectra and X-ray phase analysis results for the PSZ crystals containing 2.8 and 3.7mol.% Y2O3 with different Nd2O3 concentrations (0.04, 0.22 and 0.34mol.%) indicated that the Nd3+ ions were predominantly concentrated in the non-transformable t′ phase. The luminescence spectra of Nd3+ centres in these crystals were similar to those of yttrium-stabilized cubic zirconia. In the 0.8Nd2O3–2.0YSZ crystal the quantity of the non-transformable t′ phase is low, therefore the Nd3+ ions are contained in the transformable t phase. The luminescence spectra of Nd3+ ions occupying transformable t phase in 0.8Nd2O3–2.0YSZ crystal differs from the luminescence spectra of Nd3+ ions in stabilized cubic zirconia.