We report results of ab initio calculations on yttrium oxide clusters using a plane wave pseudopotential method within density functional theory. (Y 2O3)n clusters in the size range n = 1-10 prefer compact and symmetric globular configurations where preference for an octahedron unit of Y6O8 is seen. The evolution of the atomic structures shows similarity with that of the local structure in the bulk cubic (C-Y2O3) phase. The maximum coordinations of Y and O atoms are 6 and 4, respectively. The addition (removal) of an electron to (from) the lowest energy configurations of the neutral clusters induces significant changes for some of the cluster sizes. Sequential addition of a Y2O3 unit to the (Y2O3)n cluster leads to an increase in the binding energy. However, the HOMO-LUMO gap, ionization potential, and electron affinity do not show any systematic variation in these clusters with increasing size. The bonding characteristics have been studied using charge density and Bader charge analysis. The charge transfer from Y atoms to oxygens increases with the increase in the cluster size and approaches the value in bulk. The stability of the clusters is dominated by ionic Y-O interactions. However, a small degree of covalency is also seen in Y-O bonding. All the lowest energy configurations of neutral clusters prefer the lowest spin state and the ionic clusters prefer a doublet state. © 2013 American Chemical Society.