Structural and optical properties of Ce-stabilized tetragonal zirconium dioxide (ZrO2) and intense blue emission of monoclinic ZrO2 are presented in this paper. Nanoparticles of ZrO2 in the stabilized tetragonal and monoclinic phases have been prepared by the solution combustion method. X-ray diffraction studies and Rietveld refinement of the diffraction pattern show the stabilization of ZrO2 in the tetragonal phase (t-ZrO2) with Ce doping. It is the host-dopant ionic size mismatch that leads to lattice distortion and hence the t-ZrO2 stabilized phase. Raman modes confirm the phase transformation from the monoclinic to a tetragonal phase of ZrO2. The presence of oxygen vacancies and surface states in the samples play a role in altering the optical band gap. The dopant Ce-ions create defects/oxygen vacancies, which act as the trapping sites for electrons and holes/the donor and vacancy-related impurity levels. It is transition between these levels or between delocalized conduction bands that lead to band gap reduction. Photoluminescence studies reveal the presence of structural phase transformation dependent emission bands. The monoclinic phase (m-ZrO2) exhibits an intense blue emission originating from the asymmetric and unusual oxygen coordination of Zr in the m-ZrO2. The chromaticity coordinates indicate that the prepared material and adopted strategies are suitable in the field of optoelectronic application.