The zirconia samples containing two different concentrations of Er and Yb dopants were prepared using the Sol–Gel method and up-conversion luminescence was studied using the time-resolved techniques. The up-conversion luminescence depends on the oxygen content in surrounding gasses during annealing as well as on the annealing temperature. These dependencies indicate that ZrO2 intrinsic defects annealing and generation, phase transition as well as dopant redistribution take place. The possible role of these processes on up-conversion luminescence is discussed. The results of experiments confirmed that the annealing temperature has a crucial influence on up-conversion luminescence for samples containing small concentrations of Er and Yb; whereas for samples containing large concentrations of Er and Yb, the primary change of up-conversion luminescence is due to the grain size growth during annealing. The optimal annealing temperature depends upon the Er and Yb ion concentration. It is crucial to obtain up-conversion zirconia material with high quantum efficiency.