Rare-earth Nd³⁺-doped yttrium oxide (Y₂O₃) is an important near-infrared (NIR) laser material with good chemical and thermal stability. However, the microstructure and energy transition mechanism of Nd³⁺-doped Y₂O₃ remains challenging. Herein, we report a systematic study on the microstructure and energy transition of Nd³⁺-doped Y₂O₃ by unbiased CALYPSO structural search and our newly developed WEPMD method. A new monoclinic structure with P2 space group symmetry is identified. It is shown that the doped Nd³⁺ ion exactly substitutes the Y³⁺ ion in the host crystal, resulting in the decrease of the energy band gap of Y₂O₃. Based on the Judd–Ofelt theory, a large number of energy transitions are predicted at the NIR region. The results indicate that the energy transition of ²H(2)11/2 → ⁴I15/2 is about 1033 nm, which makes it a good candidate for laser action. Three important absorption lines from ⁴I9/2 to ²H(2)11/2, ⁴G5/2, and ²G(1)7/2, at approximately 600 nm and indistinguishable by experiment, are uncovered for the first time. The present findings enrich the fundamental understanding of the Nd:Y₂O₃ crystal and will help advance the rational design of a new type of laser device. Copyright © 2020 American Chemical Society.