Si and Ge nanocrystals were formed in alumina matrix by ion implantation and subsequent annealing. The phase separation of the Si nanocrystals was observed using X-ray photoelectron spectroscopy by monitoring Si 2p electrons. During nanocrystal formation with a high temperature annealing Si0 signals corresponding to Si nanoclusters increases while Si4+ signals related to a-SiO2 disappears from the spectrum. The transition from amorphous to nanocrystalline phase for both Si and Ge nanoclusters and the compressive stress exerted on the formed nanocrystals were also studied by Raman spectroscopy. Photoluminescence spectra of the Al2O3 containing nanocrystals were discussed by means of Ti and Cr impurities, as well as F centers. The existence of the amorphous Ge nanoclusters in alumina matrix significantly enhances the light emission of Ti3+ impurities.