Yb:YAG nanopowders were synthesized by the alcohol-water co-precipitation method adding MgO as sintering additives. Appropriate amount of MgO adding can restrict the agglomeration and reduce the particle size of Yb:YAG powders. When the MgO content was 0.04wt%, well-dispersed Yb:YAG powders with ellipsoidal particles of less than 100 nm diameter were obtained. The experimental results showed the valence variation of doping ion Yb3+ would not appear when adding MgO as sintering additives, so ceramics showed colorless transparent instead of green due to Yb2+ color center using traditional SiO2 as additives. The transmission of the sintered Yb:YAG ceramics can reach 80.6% even without annealing. Ceramic morphology showed that the grains had uniform-distribution with the size of 10 μm or so, and no impurity and pore existed in the grain boundary and crystalline while using optimal sintering conditions.