Erbium-doped aluminum nitride (AlN:Er³⁺) pine-shaped nanostructures are synthesized, through a direct reaction between aluminum (Al) and erbium oxide (Er₂O₃) mixed powders in a nitrogen (N₂) atmosphere, by using a direct current arc discharge plasma method. X-ray diffraction (XRD) analysis reveals that the diffraction peaks of AlN:Er³⁺ shift towards lower angles for the doped sample compared with those of undoped AlN, indicating lattice expansion due to Er³⁺ incorporation. X-ray photoelectron spectroscopy (XPS) confirms that Al, N, and Er are coexistent, while energy-dispersive X-ray spectroscopy (EDS) quantitatively shows that the atomic ratio for Al:N:Er is about 46.9∶52.8∶0.3. The nanostructures, resembling pine trees, are measured to be 5–10 μm in height and 1–3 μm in width, with branch nanowires extending 500 nm–1 μm in length and 50–100 nm in diameter. These branches, radiating at about 60° from the main trunk, are found to grow along the [100] direction of wurtzite-structured AlN, as evidenced by high-resolution transmission electron microscopy (HRTEM) showing lattice spacing of 0.27 nm corresponding to the (100) plane. Photoluminescence studies identify distinct emission peaks in the visible region (527, 548, and 679 nm) and near-infrared region (801, 871, and 977 nm), which is attributed to intra-4f electron transitions of Er³⁺ ions. The average lifetime of the excited state at 548 nm is measured to be 9.63 μs, slightly shorter than those of other Er³⁺-doped materials. The nanostructures demonstrate that the superior temperature sensing capability possesses a maximum relative sensitivity of 1.9×10^–2 K^–1 at 293 K, based on the fluorescence intensity ratio of thermal-coupled levels (²H_11/2/⁴S_3/2). Magnetic characterization reveals that the room-temperature ferromagnetism has a saturation magnetization of 0.055 emu/g and a coercive field of 49 Oe, with a Curie temperature exceeding 300 K, which shows the potential for room-temperature spintronic applications. First-principle calculations attribute the observed ferromagnetism to Al vacancies, whose formation energy is significantly reduced by Er doping, leading to a high concentration of Al vacancies. These findings highlight the potential of AlN:Er³⁺ pine-shaped nanostructures in various applications, including optoelectronics, temperature sensing, and dilute magnetic semiconductors.