Ge nanocrystals were formed in Al2O3 matrix by implantation of Ge ions into sapphire (alpha-Al2O3) substrates and subsequent annealing. Diagnostic techniques, Raman spectroscopy, XRD, TEM, EDS, and SAED were employed to monitor and study formation of Ge nanocrystals and their evolution during heat treatments. TEM and EDS analysis revealed the diffusion of Ge ions into the substrate during annealing process. While Ge nanocrystals with mean sizes of 15 nm were observed in the heavily implanted region small nanocrystals with mean sizes of 4 nm were identified underneath this region. Some grains of transition aluminas were formed in the implanted region which was amorphized during the implantation. Extensive stress between the transition aluminas and sapphire matrices and its effects on the matrix were detected. The effect of stress on the Raman and XRD spectra of Ge nanocrystals was discussed.