Interfacial reaction between yttria-stabilized zirconia (YSZ) and yttria-doped ceria (YDC) phases was analyzed by X-ray diffraction and high-resolution transmission electron microscopy. An X-ray diffraction pattern indicated that the mixture of YSZ and YDC consisted of their original phases after heating at 1100°C, whereas a solid state reaction occurred between them at higher temperatures. The solid state reaction proceeded as the Ce component was dissolved into the cubic YSZ phase, with an expense in the amount of the cubic YDC phase. The completion of the reaction gave a single cubic fluorite phase of Y-doped zirconia–ceria (YCZ) solid solution at 1500°C or high temperatures. A high-resolution transmission electron microscopic analysis supported this reaction process. No solid state reaction was observable at the interface of the ceria and zirconia particles on heating at 1100°C. Although the YDC and YSZ particles are tightly combined at the interface, the lattice kept its original array and orientation. The sample heated at 1300°C contained particles undergoing solid state reaction. The YDC phase was observed in the interface region of the zirconia side. The surface region of YCZ which faced the ceria particle contained a number of defects. The formation of defects is accompanied by the dissolution of ceria in the zirconia lattice and the lattice of zirconia was distorted to fit to the orientation of the ceria lattice. After heating at 1500°C the sample consisted of a homogeneous YCZ phase.