Sputter-deposited thin-film amorphous AlN:Er (1 at. %) emits at 554 and 561 nm as a result of (2)H(11/2)→(4)I(15/2) and (4)S(3/2)→(4)I(15/2) transitions. AlN:Yb (1 at. %) gives a weak emission peak at 966 nm as a result of (2)F(5/2)→(2)F(7/2). The codoping of Er and Yb in AlN results in energy transfer from Er(+3) to Yb(+3) and enhances the Yb(+3) emissions by an order of magnitude. Transfer of electrons occurs from the (4)S(3/2) state of Er(+3) to the (2)F(5/2) state of Yb(+3). The weak emission from Yb(+3), when excited by a 532 nm laser in the absence of Er(+3), confirms that the luminescence enhancement in ytterbium is due to energy transfer and not to direct green light excitation by the erbium emission. A possibility of population inversion and a four-level laser cavity formation exists in the Er(+3)-Yb(+3) system.