We have investigated the optical activity of Ho3+ ions in AlN layers in the as prepared and annealed states. The films were grown using RF magnetron sputtering in a pure nitrogen atmosphere. After annealing we observe strong characteristic Ho3+ emission peaks at 549, 660 and 760 nm corresponding to the 5S2 → 5I8, 5F5 → 5I8 and 5I4 → 5I8 transitions, respectively. The emission peak at around 692 nm corresponds to the Cr3+ emission (Cr is an unintentional dopant). A strong increase in Ho3+ emission intensity and activation of Cr3+ ions are accompanied by enhanced oxygen and other defect related luminescence. The structural analysis shows that during annealing new AlN crystallites form in the initially mostly amorphous AlN matrix. © 2006 Elsevier B.V. All rights reserved.