Europium-doped Lu2O3 nanocrystalline powders with Eu concentrations of 1-13 (m/o) were prepared via a combustion route. Their morphology was determined with TEM measurements. It was found that the sizes of nanocrystallites were around 10-13 nm. These powders were sintered at 1700 degreesC into tablets whose grains were a few micrometers wide. Absorption and emission spectra of all materials were measured. Pronounced changes of UV absorption bands with increasing concentration were observed in the case of nanoparticulate powders. The Eu emission lifetimes of nanopowders demonstrated significant concentration quenching. No such effect was observed for the sintered materials up to 13 (m/o) of Eu. A strong decrease of the emission rise time with rising Eu concentration was found for both types of the material at room temperature. At the temperature of liquid nitrogen, the longest rise time in the case of nanomaterials (similar to 110 mus) was found for a sample containing 5% of Eu, whereas for the sintered ceramics. the behavior was very similar to that at room temperature. Spectroscopic results are elucidated by a concept of strong aggregation of Eu3+ ions in nanocrystallites when the ion exceeds 3%. An aggregation of Eu3+ ions can be deduced from the nonexponential decay kinetics and leads to fast energy migration, resulting in the linear concentration dependence of the decay rate.