Nanopowder of yttrium aluminum garnet (YAG, Y3Al5O12) doped with neodymium ions (Nd:YAG) was prepared in the water/cetyltrimethylammonium bromide/1-butanol/n-heptane system. Aluminum, yttrium, and neodymium nitrates were used as starting materials, and ammonia was used as a precipitating agent. Coprecipitate hydroxide precursors where thermally treated at 900 degrees C to achieve the garnet phase. The starting system with and without reactants was characterized by means of the small-angle neutron scattering technique. The system, without reactants, is constituted by a bicontinuous structure laying near the borderline with the lamellar phase region. The introduction of nitrates stabilizes the bicontinuous structure, while the presence of ammonia induces a transformation from the bicontinuous phase to a lamellar phase. Nd:YAG nanopowder was characterized by wide-angle X-ray scattering, transmission electron microscopy, gas adsorption, and photoluminescence spectroscopy. By comparison with a sample prepared by the conventional coprecipitation method, the obtained Nd:YAG nanopowder is constituted by smaller crystalline nanoparticles showing a lower tendency to agglomerate. In addition, the nanoparticles present a well-defined spherical shape. Photoluminescence spectroscopy confirms that the doping Nd3+ ions substitute Y3+ ions in the YAG crystalline lattice. The Nd3+ lifetime value, obtained from the luminescence decay curves, was 286 +/- 10 mu s, higher than the single-crystal value (255 mu s) and much higher than the nanopowder value obtained by the conventional coprecipitation method (75 mu s).