In recent years there has been a significant evolution in the development of high purity growth methods for nanoparticles in the 10 nm size range. Concurrently, new processing methods have led to the emergence of laser quality transparent ceramics prepared from rare-earth-doped nanopowders. Output powers and efficiencies of ceramic lasers have been reported to compare very well with those of crystal laser systems, causing interest both in nanoscale and macro-scale optical ceramics. In this paper, we first describe highly scattering oxide powders that generate continuous-wave random laser action, are able to store light, exhibit quantum size effects, and sinter to transparency at exceptionally low temperatures. Quantum size effects and modified dopant interactions in transparent ceramics processed from these powders are then considered, and their potential relevance to problems in laser cooling and the engineering of nanostructured ceramics for solid state lasers and nonlinear optics are evaluated.