Transparent 3.6 at.% Yb:Lu₃Al₅O₁₂ (Yb:LuAG) ceramics are obtained by solid-state reaction synthesis at 1800 °C in vacuum for 1–5 h using Yb:Lu₂O₃ and Al₂O₃ nanopowders (mean size: ∼30 nm) produced by laser ablation and sedimentation. The nanopowders and ceramics are studied by DSC, dilatometry, SEM, XRD, Raman and optical spectroscopy. The effect of the sintering aid (tetraethoxysilane, TEOS, up to 1 wt%, equivalent to 0–0.28 wt% of SiO₂ addition) on the micro-structural and optical properties of the ceramics is revealed. With the addition of TEOS, the transparency of the ceramics is improved while the growth of the grains is limited by the SiO₂ solubility. For the ceramics sintered at 1800 °C for 5 h with 1 wt% of TEOS, the transmission at ∼1.1 μm is as high as 82.7% and the content of pores is 7 ppm, corresponding to a mean grain size of 14 μm. The ceramics exhibit intense Yb³⁺ luminescence at ∼1 μm. The maximum stimulated-emission cross-section is σ_SE = 2.46 × 10⁻²⁰ cm² at 1030.2 nm and the luminescence lifetime of the ²F_5/2 state is 1.01 ms, close to the radiative one. The synthesized ceramics are promising for thin-disk laser elements.