Erbium-doped aluminum nitride (AlN:Er³⁺) pine-shaped nanostructures were synthesized via a direct current arc discharge plasma method, utilizing a direct reaction between aluminum (Al) and erbium oxide (Er₂O₃) mixed powders in a nitrogen (N₂) atmosphere. X-ray diffraction (XRD) analysis revealed a shift in the diffraction peaks towards lower angles for the doped sample compared to undoped AlN, indicative of lattice expansion due to Er³⁺ incorporation. X-ray photoelectron spectroscopy (XPS) confirmed the presence of Al, N, and Er, while energy-dispersive X-ray spectroscopy (EDS) quantified the atomic ratio at approximately 46.9:52.8:0.3 for Al:N:Er. The nanostructures, resembling pine trees, measured 5-10 μm in height and 1-3 μm in width, with branch nanowires extending 500 nm to 1 μm in length and 50-100 nm in diameter. These branches, radiating at approximately 60° from the main trunk, were found to grow along the [100] direction of wurtzite-structured AlN, as evidenced by high-resolution transmission electron microscopy (HRTEM) showing lattice spacings of 0.27 nm corresponding to the (100) plane. Photoluminescence studies identified distinct emission peaks in the visible (527, 548, and 679 nm) and near-infrared (801, 871, and 977 nm) regions, attributed to intra-4f electron transitions of Er³⁺ ions. The average lifetime of the excited state at 548 nm was measured at 9.63 μs, slightly shorter than other Er³⁺-doped materials. The nanostructures demonstrated superior temperature sensing capabilities with a maximum relative sensitivity of 1.9% K⁻¹ at 293 K, based on the fluorescence intensity ratio of thermal-coupled levels (²H_11/2/⁴S_3/2). Magnetic characterization revealed room-temperature ferromagnetism with a saturation magnetization of 0.055 emu/g and a coercive field of 49 Oe, with a Curie temperature exceeding 300 K, suggesting potential for room-temperature spintronic applications. First-principle calculations attributed 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 underscore the potential of AlN:Er³⁺ pine-shaped nanostructures in diverse applications, including optoelectronics, temperature sensing, and dilute magnetic semiconductors.