Ho3+-doped (K0.5Na0.5)NbO3-based transparent ceramics have been prepared via pressureless solid-state method. The ceramics possess moderate optical transparency with the energy band gap of 2.9eV and submicron-sized grains (<500nm). The temperature-dependent dielectric properties and ferroelectric polarization-electric field hysteresis loops demonstrate that the ceramics own relaxor-like characteristics. The up-conversion photoluminescence and optical temperature sensing properties of the ceramics have been investigated. The temperature dependence of photoluminescence provides a fluorescent method to detect phase transitions, which can be expanded to other ferroelectric systems. The outstanding optical temperature sensitivity (0.0075/K at 430K) of the ceramic is higher than many other rare-earth-doped ceramics or glasses. These results suggest that the Ho3+-doped (K0.5Na0.5)NbO3-based transparent ceramics are promising lead-free transparent materials for multifunctional applications, especially in temperature sensing devices.