It is found that Nb co-doping increases the luminescence and upconversion luminescence intensity in rare earth doped zirconia. Er and Yb-doped nanocrystalline samples with or without Nb co-doping were prepared by sol-gel method and thermally annealed to check for the impact of phase transition on luminescence properties. Phase composition and grain sizes were examined by X-ray diffraction; the morphology was checked by scanning- and high-resolution transmission electron microscopes. Both steady-state and time-resolved luminescence were studied. Comparison of samples with different oxygen vacancy concentrations and different Nb concentrations confirmed the known assumption that oxygen vacancies are the main agents for tetragonal or cubic phase stabilization. The oxygen vacancies quench the upconversion luminescence; however, they also prevent agglomeration of rare-earth ions and/or displacement of rare-earth ions to grain surfaces. It is found that co-doping with Nb ions significantly (>20 times) increases upconversion luminescence intensity. Hence, ZrO2:Er:Yb:Nb nanocrystals may show promise for upconversion applications. © 2014 AIP Publishing LLC.