Atomic layer deposition based on alternate cycling of ZrCl4, Dy(thd)3 and H2O as precursors was applied for preparation of nanocrystalline ZrO2:Dy thin films. Photoluminescence (PL) properties of Dy3+ in the ZrO2 films were studied at several laser excitations. Substantial activation of Dy3+ PL required thermal treatment at 900°C. As a result of annealing, thinner (~80nm) films with higher Dy content retained relatively high amount of tetragonal phase and remained crack-free. In thicker (~140nm) films, considerable amount of monoclinic phase was formed and a peculiar microscale cracking pattern was developed along with phase segregation. It is demonstrated that the crystal structure of ZrO2 significantly influences the Dy3+ emission spectrum and, at least for ZrO2-type matrices, Dy3+ is an excellent luminescent microprobe in comparison with micro-Raman scattering. A Förster-like PL decay profile allowed a conclusion that the self-quenching due to cross-relaxation between Dy3+ ions had a marked impact on emission intensity.