The synthesis, structural, luminescent, and magnetic properties of multifunction 8 at. % Eu-doped Gd2O3 nanocrystals were investigated. The material was synthesized by the solution combustion technique and characterized by x-ray diffraction (XRD), transmission electron microscopy, and photoluminescence and magnetization measurements. The as-prepared material presents predominant base-centered monoclinic structure with average crystallite size of 35 nm. Isothermal annealing at 1000 °C for up to 152 h induced gradual structural transition toward the body-centered cubic structure. Debye–Scherrer analysis of XRD results showed that annealing did not induce grain growth of monoclinic nanocrystals, while cubic nanocrystals reached 47 nm after annealing for 152 h. The luminescent behavior was monitored as a function of annealing time and related to the structural transformation. In particular, an inversion of the predominant photoluminescence emission line from 621.4 to 609.5 nm was observed and related to changes in the crystalline field resultant to phase transformation from cubic to monoclinic. Magnetic measurements revealed the paramagnetic nature of the material, much insensitive to the crystallographic structure.