Lutetium oxide (Lu2O3) nanocrystals doped with 2%Yb3+, 0.5%Tm3+, and various doping concentrations of Li+ (0, 3, 5, 7, 10, 12, and 15 mol%) were prepared by the sol-gel method. The dependence on different doping concentrations of Li+ ions of the structure, morphology, and the upconversion emission intensity of the Lu2O3:2%Yb3+, 0.5%Tm3+ nanocrystals was investigated. The obtained Lu2O3 nanocrystals were systematically characterized by X-ray diffraction (XRD), field emission-scanning electron microscopy (FE-SEM), Fourier transformed infrared (FT-IR) spectra, Raman spectra, and upconversion spectra measurements. It was found that all the nanocrystals can be readily indexed to pure cubic phase of Lu2O3, indicating good crystallinity. The experimental results show that Li+ doping in Lu2O3:2%Yb3+, 0.5%Tm3+ nanocrystals can greatly enhance the upconversion emission intensity. The strong blue (490 nm) and the weak red (653 nm) emissions from the prepared nanocrystals were observed under 980 nm laser excitation, and attributed to the 1G4 --> 3H6 and 1G4 --> 3F4 transitions of Tm3+ ions, respectively. An simple analysis based on steady-state rate equations and a power-dependent study both indicate that the 1G4 levels can be populated by three-step energy transfer (ET) processes. The enhancement of the upconversion luminescence was suggested to be the consequence of the modification of the local field symmetry around the Tm3+ ion, reduced number of OH- groups, and the enlarged nanocrystal size induced by the Li+ ions.