Gd2O3:Eu3+ yolk–shell phosphor powders with high photoluminescence intensity were prepared by spray pyrolysis. Preparation temperature and spray solution concentration were varied to find the optimum process conditions for preparation of Gd2O3:Eu3+ with yolk-shell structure. The formation mechanism of yolk-shell Gd2O3:Eu3+ was systematically investigated by observing the microstructures of particles produced for various preparation conditions. The morphological structure of Gd2O3:Eu3+ powders was clearly dependent on reactor temperature and on the precursor solution concentration. Eventually, pure yolk-shell structured Gd2O3:Eu3+ powders were obtained for a reaction temperature of 1000 oC and concentration of the spray solution below 0.2 M. Also, the yolk-shell structure formed showed high thermal stability, making it possible to maintain the original spherical yolk-shell structure through calcination at high temperatures. As a result, highly crystalline Gd2O3:Eu3+ phosphor powders having yolk-shell structure and an agglomeration-free spherical shape were successfully synthesized by spray pyrolysis. These phosphor powders were shown to have good photoluminescence characteristics.