We have investigated the local structure and photoluminescence properties of ultrasmall Ge islands grown on Si(111) covered with SiO2. Scanning electron microscopy and transmission electron microscopy measurements show that the islands have a hemispherical shape, and depending on the growth temperature, can be either epitaxial or nonepitaxial. X-ray absorption near-edge structure measurements demonstrate that the nonepitaxial islands have the local structure of bulk diamond Ge and are very stable towards oxidation. The epitaxial islands are found to be partly oxidized, but no alloying with the Si substrate is observed. The nonepitaxial islands exhibit a photoluminescence peaked at 2.3 eV, which is typical of Ge nanocrystals embedded in SiO2. Possible mechanisms for the stability of the nonepitaxial Ge islands towards oxidation are discussed. © 2001 American Institute of Physics.