The effects of rare-earth oxides, e.g., La, Nd, Sm, Dy and Yb, on the reliability of multilayer capacitors (MLCs) with X7R dielectrics and Ni electrodes were investigated. Microstructures of the dielectrics were analyzed by transmission electron microscopy (TEM) and electron probe microanalysis (EPMA) in order to characterize the rare-earth ions. Incorporation of rare-earth ions to BaTiO3 ceramics depended on their ionic radius, resulting in different microstructures and electric performances of dielectrics. Dy ions provided BaTiO3 ceramics with ideal X7R characteristics and high reliability. The mechanism governing leakage current was discussed in terms of the voltage dependence of leakage current. Electric properties and related reliability of the capacitors were attributed to solubility, distribution of rare-earth oxides and their occupation site in BaTiO3.