The effect of gadolinia addition on microstructure, electrical and dielectric characteristics, and aging behavior of vanadium oxide–doped zinc oxide varistor ceramics was systematically investigated. The average grain size decreased from 5.6 to 5.2 μm with an increase in the amount of Gd2O3 up to 0.1 mol%, whereas a further increase caused it to increase to 5.7 μm at 0.25 mol%. The sintered densities decreased from 5.51 to 5.44 g/cm3 with an increase in the amount of Gd2O3. With increasing the amount of Gd2O3, the breakdown field increased from 4,800 to 5,365 V/cm up to 0.05 mol%, whereas a further increase decreased it to 4,781 V/cm at 0.25 mol%. The varistor ceramics modified with 0.05 mol% Gd2O3 exhibited excellent nonlinear properties, with 66.1 in the nonlinear coefficient, whereas a further increase caused it to decrease to 17.6 at 0.25 mol%. The gadolinium acted like a donor, based on the electron concentration increasing from 4.20 × 1017/cm3 to 7.38 × 1017/cm3 with an increase in the amount of Gd2O3.