A detailed study of the optical absorption and emission spectra of Ho³⁺ ions in LiNbO₃ crystals in the visible spectral region is presented. The positions of the crystal-field levels are given for the ⁵F₅, ⁵S₂+⁵F₄, ⁵F₃ and ⁵G₆ multiplets of Ho³⁺ ions. The type and character of the Stark transitions have been determined by polarized absorption measurements. Optical absorption measurements and site-selective spectroscopy have shown the existence of two crystal-held sites for Ho³⁺ in the LiNbO₃ matrix. The effect of co-doping with MgO on the optical spectra of Ho³⁺ ions has also been studied and a new Ho³⁺ Site perturbed by the presence of a neighbouring Mg²⁺ ion is evidenced.