In this work the mechanisms that affect the optical transparency of nanostructured translucent ZrO2 ceramics are studied. The translucent ceramic samples were obtained from a low agglomeration nanosized powder at low pressure and low temperature sintering. Even low pressures cause structural changes and defect creation in the nanocrystals. Annealing was used to study the grain formation, structure and impact of defects. Significant changes in translucency were observed with increase in pore size. In order to further understand the defect creation, the obtained ceramics were doped with Er3+ ions and studied optically. Photoluminescence studies revealed a change in the ratio of green to red parts of the spectrum as well as luminescence quenching when samples were pressed into pellets. Additionally, grain and pore size dependence on annealing temperatures was studied using X-ray diffraction, scanning electron microscopy and transmission electron microscopy.