The processing-microstructure-property relations have been studied in order to understand the role of the addition of CeO2 (up to 0.9 mole%) in the ZnO-Bi2O3 based varistor recipe. The microstructural investigation suggests that CeO2 is segregated at the corners of the ZnO grains in addition to the existence of the Zn7Sb2O12 spinel phase. However, the α-spinel phase was observed instead of the β-spinel phase that is usually found in most commercial and laboratory ZnO-Bi2O3 based varistors. The α-spinel phase is more stable than the β-spinel phase and does not transform to the pyrochlore phase during the cooling process. The most significant effect of the CeO2 particles is the ZnO grain refinement owing to the pinning effect of the grain growth. The average grain size decreases from 7.8 to 5.7μm when compared to the 0.9 mole% CeO2-added sample against the CeO2-free sample. This grain refinement results in a significantly enhanced breakdown field when compared to the CeO2-free sample. The coefficient of nonlinearity of the current–voltage (I-V) characteristics is found to be nearly identical for the CeO2 added varistor materials. However, when a slower cooling cycle (1℃ min−1 instead of 4℃ min−1) is used in the sintering process, these varistor materials exhibited a high nonlinear coefficient (α=29±5) as extracted from the I-V behaviour.