Eu doped aluminum nitride phosphors were successfully synthesized by a novel gas-reduction-nitridation route with a reaction temperature of 1400 °C and a soaking time of 3 h. The obtained AlN:Eu phosphors were analyzed to elucidate the location of the Eu luminescent center. High-resolution transmission electron microscopy and transmission electron microscopy-energy dispersive spectra proved that Eu was located in the crystal lattice of AlN, then EXAFS revealed that Eu occupied a highly distorted Al site coordinated by four nitrogen at about 2.30–2.40 Å, and the second nearest neighbors of Eu were 12 Al. This could be confirmed by the first-principles calculations based on the obtained local structure around the Eu luminescence center, where the theoretical absorption spectrum was similar to the experimental excitation spectrum. X-ray appearance near edge structure showed that Eu existed in terms of both Eu3+ and Eu2+ ions, which could be related to the limited location space of Eu. High temperature treatment could significantly increase the amount of Eu2+ by the expansion of the crystal lattice, leading to an increased green luminescence of the obtained AlN:Eu phosphors.