SiO2 nanocrystals embedded in Lu2O3 thin film were fabricated using pulsed-laser deposition method. Two dimensional finite element calculations clearly reveal that SiO2 nanocrystals certainly experienced great compressive stress in Lu2O3 thin film. This may lead to a great deal of stress-induced defects at the interface of SiO2 nanocrystals embedded in Lu2O3 thin film and thus induced the observed photoluminescence peak and charge storage properties. The findings presented here indicate that the matrix environment of the nanocrystals plays a significant role in determining their electrical and optical properties. (C) 2009 Elsevier B.V. All rights reserved.