Transparent nanocomposites are a possible alternative to single-phase mid-IR solid state lasers, as nanocomposites could potentially avoid the materials performance tradeoffs. We aim to use a ceramic nanocomposite containing Er:Y₂O₃ and MgO to combat two challenges for mid-IR laser materials: dissipation of heat generated in lasing and luminescence quenching by multi-phonon relaxation. However, having two materials with different indices of refraction is a new challenge to the production of transparent parts.  Increasing the amount of Er:Y₂O₃ leads to changes in the sintering processes to obtain dense parts while maintaining the desired microstructure. As more Er:Y₂O₃ is introduced to the system, the MgO grain size decreases.  However, this leads to larger Er:Y₂O₃ grains that cause increased light scattering. We will show how initial crystallite size, sintering temperatures and pressures affect the final microstructure and mid-IR transmission.