We have investigated properties of the compound LuAlO3:Ce^3+ associated with the Ce^3+ 4f-5d transition by using the periodic density functional theory. A hybrid functional has been used for the 4f states and a constrained approach has been employed for the excited 5d state. It is found that the average distance between Ce^3+ and the eight nearest-neighbor O atoms decrease by 0.05 A on going from 4f to 5d state. The calculated Stokes shift is in good agreement with experiment. Based on the optimized structure around Ce^3+, the energy level scheme of the 5d states has been evaluated using the angular overlap model, in reasonable agreement with experiment.