Through restricting thickness growth by performing coprecipitation at the freezing temperature of ~4 °C, solid-solution nanosheets (up to 5-nm thick) of the Ln2(OH)5NO3·nH2O layered hydroxide (Ln = Y0.98RE0.02; RE = Pr, Sm, Eu, Tb, Dy, Ho, Er, and Tm, respectively) were directly synthesized without performing conventional exfoliation. In situ exchange of the interlayer NO3− with SO42− produced a sulfate derivative [Ln2(OH)5(SO4)0.5·nH2O] of the same layered structure and two-dimensional crystallite morphology but substantially contracted d002 basal spacing (from ~0.886 to 0.841 nm). The sulfate derivative was systematically compared against its nitrate parent in terms of crystal structure and phase/morphology evolution upon heating. It is shown that the interlayer SO42−, owing to its bonding with the hydroxide main layer, significantly raises the decomposition temperature from ~600 to 1000 °C to yield remarkably better dispersed oxide nanopowders via a monoclinic Ln2O2SO4 intermediate. The resultant (Y0.98RE0.02)2O3 nanophosphors were studied for their photoluminescence to show that the emission color, depending on RE3+, spans a wide range in the Commission Internationale de l’Eclairage (CIE) chromaticity diagram, from blue to deep red via green, yellow, orange, and orange red.