The effect of Li⁺ co-doping on the photoluminescence properties of YPO₄:Eu is discussed. Interesting behaviours, such as the presence of intermediate bands, shifting of the Eu–O charge transfer band (Eu–O CTB) to a lower wavelength, variation in intensities of magnetic (⁵D₀ → ⁷F₁) and electric dipole (⁵D₀ → ⁷F₂) transitions of Eu³⁺ and shift of ⁵D₀ → ⁷F₀ to higher energy with increasing excitation wavelengths are observed. The Eu³⁺ ion does not have an absorption band in the range 340–350 nm, but after excitation at these wavelengths, a broad emission band (370–570 nm), as well as sharp peaks of Eu³⁺, could be observed. This is due to strong energy transfer from the intermediate band of the host to the Eu³⁺ ion. X-ray photoelectron spectroscopy (XPS) study also confirms that intermediate band emission is not due to Eu²⁺ ion emission. The blue shifting of Eu–O CTB is because of the increase in the optical electronegativity of the Eu³⁺ ion on Li⁺ co-doping. The variation in intensities of the ⁵D₀ → ⁷F₂ and ⁵D₀ → ⁷F₁ dipole transitions is related to (i) overlapping interaction parameters within the ground and excited states, (ii) exchange interaction among atoms/ions and (iii) density of the incoming photons. Shift of ⁵D₀ → ⁷F₀ to a higher energy with increasing excitation wavelengths is because of change in the second order crystal field parameter B₂₀ with excitation wavelength. The significant enhancement of luminescence intensity is found with Li⁺ co-doping due to the increase in crystallinity.