We have carried out neutron inelastic scattering measurement of the phonon density of states and lattice dynamic calculations for Y₂O₃ using ab-initio density functional perturbation theory and interatomic potential model. The calculations are found to be in good agreement with experimental data, indicating that the potential model can be used for the calculation of phase diagram of Y₂O₃. The model is then used for free energy calculation to understand the stability of various phases as a function of pressure and temperature.