Using scanning transmission electron microscopy and aberration-corrected high-resolution transmission electron microscopy the existence of Er around Ge nanocrystals (NCs) is established. In fact, Ge NCs with Er-rich graded interfaces are proposed experimentally and validated by theoretical modeling using a supercell structure that consists of compounds determined by x-ray diffraction. The local electronic structure of the proposed interface geometry is found to be in accordance with the hypothesis behind the inverse energy transfer process from the Er3+ to Ge related oxygen-deficiency centers. © 2011 American Physical Society.