Luminescence of ZrO₂:Eu free-standing nanocrystals (nanopowders) containing different concentration of Eu (from 0.1 up to 5% in the raw material for nanocrystal synthesis) was studied. The luminescence was excited by a pulsed laser beam (4.66 eV, 8 ns). The luminescence spectra and decay kinetic were recorded. Eu³⁺ emission lines within 1.4 and 2,5 eV ("red luminescence") were observed in all samples studied, whereas trace from Eu²⁺ emission was not found. The intensity of Eu³⁺ luminescence was higher for samples with larger Eu concentration, however above 1% concentration the intensity of luminescence tend to the saturation. The luminescence decay kinetic shown dependence on Eu³⁺ concentration also. It was concluded only Eu³⁺ state was incorporated in ZrO₂ and above 1% (in raw material) concentration interaction between Eu³⁺ ions take place. The luminescence decay kinetic shown more than one decay component indicating that Eu³⁺ was incorporated in different positions. More appropriate position for Eu³⁺ is Zr⁴⁺ site and the charge compensation by oxygen vacancy take place, since one vacancy serve as charge compensator for two Eu³⁺ the different spacing between oxygen vacancy and Eu³⁺ is suggested. Thus, the oxygen surrounding of Eu³⁺ was not the same for all ions and different distorted sites appear. Possible configurations of Eu³⁺ sites will be discussed.