Optical ceramics have attracted increasing interest because of their superior mechanical toughness, better homogeneity, and potential for scaling and microstructural design compared to state-of-the-art single crystals. Optical transparency in ceramics were traditionally only achievable using optically isotropic materials because of the birefringent scattering loss in optically anisotropic materials. However, commonly used optically isotropic materials have limited thermal conductivities that fundamentally restrain heat extraction in high power applications. Excessive temperature gradient caused by low thermal conductivity affects the light transmitting properties of these materials and can eventually lead to thermomechanical failure. One solution for this challenge is to use optically anisotropic materials such as aluminum oxide (alumina, Al2O3) and aluminum nitride (AlN) that have better thermal conductivity and superior mechanical toughness. By reducing the grain size of these optically anisotropic materials, scattering loss caused by birefringence can be minimized, thus recover the material transparency.Here, transparent nanocrystalline thulium doped Al2O3 ceramic is produced and characterized, with the highest in-line transparency among rare earth doped Al2O3 ceramics reported. Nanocrystalline AlN powder is synthesized and densified using current-activated, pressure-assisted densification (CAPAD). The resulting AlN nanocrystalline ceramic is the finest-grained fully dense AlN ceramic reported and showed significant transparency improvement compared to transparent AlN ceramics reported. Finally, thulium dopant incorporation into lab synthesized nanocrystalline AlN is studied. These results show the potential of nanocrystalline microstructure in enabling the use of optically anisotropic materials in transparent ceramic applications. The use of nanocrystalline Al2O3 and AlN ceramics may enable thermally and mechanically more robust light transmitting/emitting devices under challenging conditions. The significant improvement in transparency of nanocrystalline AlN ceramic by reducing its grain size to sub-micrometer range also broadens the material selection range for optical ceramics.