This paper presents results of a detailed study of fundamental aspects of the formation of 2D and 3D nanostructured YSZ:Yb3+ ceramics with a cubic structure through a key synthesis step in aqueous solutions of zirconium-containing hydroxy nanoparticles (1–2 nm) modified by Y3+ and Yb3+ ions, with the use of a sol–gel method and subsequent calcination of the resultant xerogels at temperatures above 350°C. As starting chemicals for the synthesis of ceramic powders, we used zirconyl, yttrium, and ytterbium nitrates and chlorides and aqueous ammonia. Using mixed solutions of these salts and a procedure developed by us, we synthesized sols, gels, and xerogels. To examine the effect of temperature on solid-state transformations, the xerogels were calcined according to a predetermined program in a muffle furnace at temperatures in the range from 350 to 1350°C (rarely, up to 1650°C). We focused primarily on ceramic powders close in composition to 0.86ZrO2 · 0.10Y2O3 · 0.04Yb2O3. The ceramics were characterized by high-resolution transmission electron microscopy, electron microdiffraction, electronic diffuse reflectance spectroscopy, energy dispersive X-ray microanalysis, and X-ray fluorescence analysis.