Rib-loaded waveguides containing Er3+-coupled Si nanoclusters (Si-nc) have been produced to observe optical gain at 1535 nm. The presence ofSi-nc strongly improves the efficiency ofEr 3+ excitation but may introduce optical loss mechanisms, such as Mie scattering and confined carrier absorption. Losses strongly affect the possibility of obtaining positive optical gain. Si-nc-related losses have been minimized to 1 dB/cm by lowering the annealing time ofthe Er3+-doped silicon-rich oxide deposited by reactive magnetron cosputtering. Photoluminescence (PL) and lifetime measurements show that all Er3+ ions are optically active while those that can be excited at high pump rates via Si-nc are only a small percentage. Er3+ absorption cross section is found comparable to that ofEr 3+ in SiO 2.However, dependence on the effective refractive index has been found. In pump-probe measurements, it is shown how the detrimental role ofconfined carrier absorption can be attenuated by reducing the annealing time. A maximum signal enhancement ofabout 1.34 at 1535 nm was measured.