Si and Ge nanocrystals were formed in Al2O3 matrix by ion implantation and subsequent annealing. The phase separation of the Si nanocrystals was observed using X-ray photoelectron spectroscopy by monitoring Si 2p electrons. During nanocrystal formation with a high temperature annealing Si4+ signals corresponding to Si nanoclusters increase while Si 4+ signals related to a-SiO2 disappear from the spectrum. The transition from amorphous to nanocrystalline phase for both Si and Ge nanoclusters and the compressive stress exerted on the formed nanocrystals were also studied by Raman spectroscopy. Photoluminescence spectra of the Al 2O3 containing nanocrystals were discussed by means of Ti and Cr impurities, as well as F centers. The existence of the amorphous Ge nanoclusters in Al2O3 matrix significantly enhances the light emission of Ti3+ impurities. © 2007 Materials Research Society.