We perform a systematic spectroscopic study in channel waveguides of potassium gadolinium lutetium double tungstate doped with different Er3+ concentrations. Transition cross sections of ground-state absorption (GSA) and excited-state absorption (ESA), as well as stimulated emission (SE) at the pump wavelength around 980 nm are determined. ESA is directly measured by the pump-probe technique. Evaluation of GSA and ESA spectra indicates that ESA may be diminished by an appropriate choice of pump wavelength near 980 nm. Besides, GSA and SE at the signal wavelength around 1.5 µm are measured and the wavelength-dependent gain cross section as a function of excitation density is determined. Non-exponential luminescence decay curves from the 4I13/2 and 4I11/2 levels are analyzed and the probabilities of the energy-transfer-upconversion (ETU) processes (4I13/2, 4I13/2) → (4I15/2, 4I9/2) and (4I11/2, 4I11/2) → (4I15/2, 4F7/2) are quantified. Despite the large interionic distance between neighboring rare-earth sites in potassium double tungstates, the probability of ETU is comparatively large because of the large cross sections of the involved transitions. A rate-equation analysis of the influence of ETU and ESA on gain at ∼1.5 µm is performed, revealing that ETU from the 4I13/2 amplifier level strongly limits the gain when the doping concentration increases above ∼6at.%. The calculated maximum achievable internal net gain per unit length amounts to ∼15 dB/cm for an optimized Er3+ concentration of ∼4 × 1020 cm−3 and a launched pump power of 300 mW at a pump wavelength of 984.5 nm, in reasonable agreement with recent experimental results.