Abstract Nd 3+ doped MgAl 2 O 4 spinel nanocrystals have been prepared by the sol–gel method. Their size decreases from 12 to 7 nm with increasing Nd 3+ concentration from 0.1 to 5%, respectively. Some crystal field components of the Nd 3+ energy levels in MgAl 2 O 4 spinel were found from the 300 K reflectance absorption and the 77 K emission spectra. The 4 F 3/2 → 4 I 9/2 transition dominates in the emission spectra and accordingly spectroscopic-quality parameter (SQP) is equal to 3.3 for all samples. Decay time of the emission from the 4 F 3/2 level in MgAl 2 O 4 :Nd 3+ (0.1%) nanocrystals is equal to 90 μs, and decreases with increasing neodymium concentration due to very efficient cross-relaxations. The slope of cross-relaxation rate is close to 2 which indicates fast donor–donor transfer.