This study explores the enhancement of polyvinyl alcohol (PVA) films by incorporating erbium oxide (Er2O3) nanoparticles using the casting solution method. We investigated the structural, optical, electrical, dielectric, and mechanical properties of PVA-Er2O3 nanocomposite films with varying Er2O3 concentrations (2.5, 5, 7.5, and 10 wt%). Structural analyses confirmed successful nanoparticle integration. Optical measurements revealed reduced transparency and bandgap, alongside increased refractive index. Electrical conductivity showed significant improvement with Er2O3 inclusion. Dielectric properties demonstrated enhanced performance, with frequency-dependent studies and Argand plot analysis providing insights into charge transport and relaxation mechanisms. Mechanical testing indicated increased tensile strength and Young’s modulus, with the 10 wt% nanocomposite showing comparable performance to pure PVA. These findings highlight the potential of PVA-Er2O3 films for advanced applications in electronics, sensors, and energy storage systems.