2 at.% Tm:Lu2O3 ceramics were fabricated by vacuum sintering plus hot isostatic pressing (HIP) from nano-powders without sintering aids. The resultant powders consist of spherical particles with the diameter of about 100 nm. The HIP post-treated ceramic sample has fine grains and clean grain boundaries, whose in-line transmittance reaches 82.1% at 2000 nm (1.3 mm thickness). The mechanical, thermal, and spectral properties were also investigated systematically. The thermal conductivity of the Tm:Lu2O3 transparent ceramics is 10.2 W·m−1·K−1 at room temperature. The absorption and emission cross-sections are 0.35 × 10−20 cm2 at 796 nm and 1.13 × 10−20 cm2 at 1943 nm, respectively. The laser performance was tested in quasi-continuous wave (QCW) conditions. A maximum laser output power of 0.45 W was obtained with a slope efficiency of 16.0%. Results indicate that Tm:Lu2O3 transparent ceramics is a promising gain medium for 2 μm laser applications.