Abstract: The phase and microstructure relationship of 12 mol% CeO2-stabilized ZrO2 ceramics prepared from coated powder was investigated using scanning electron microscopy (SEM), transmission electron microscopy (TEM), and energy-dispersed Xray spectroscopy (EDS). As compared with the sample prepared with co-precipitated method, which exhibited a similar grain size distribution, the EDS analysis revealed that the powder coating induced a wide distribution of CeO2 solubility, which decreases monotonically with the increase of grain size. This variation of stabilizer content from grain to grain rendered many large grains in the monoclinic phase. Stronger cerium segregation to grain boundaries was observed between large grains, which often form thin amorphous films there. The inhomogeneous; CeO2 distribution keeps more tetragonal ZrO2 grains close to the phase boundary to facilitate the transforming toughness. Addition of an Al2O3 precursor in coated powders effectively raises the overall CeO2 stabilizer content in the grains and preserves more transformable tetragonal phase in the microstructure, which further enhanced the fracture toughness. The dependence of CeO2 solubility on grain size may be explained in a simple coating-controlled diffusion and growth process that deserves further investigation.