Effects of different thermal conditions on lead-free (Bi0.65Ba0.35)(Fe0.65Ti0.35)O3 ceramics were studied to reduce secondary phase formation, regulate bismuth vacancies and resulting oxygen vacancies, and Fe ions valence transition during the heat treatment process. The optimal thermal conditions led to a higher d33 = 200 pC/N and a d33* = 420 pm/V. A/B-sites ions replacement in BF35BT, BF35BT-Zr, and BF35BTSZ ceramics were prepared to reveal the effects of different Zr or Sr-Zr-contents. A maximum tetragonality (cT/aT) was estimated for the single doping (Zr) and co-doping (Sr and Zr) cases. For Zr = 0.02, the electric field-induced strain reached its maximum value of d33* = 562 pm/V. Similarly, a strain of d33* = 701 pm/V was observed for Sr-Zr = 0.02. Additionally, the d33* improved to 870 pm/V (90 °C) in Zr = 0.02 and 1130 pm/V (120 °C) in Sr-Zr=0.02. The presence of local structural heterogeneity causes the domain size to decrease as it moves from the micro to the nanoscale. The results demonstrate that improved performance can be associated with reduced concentration of oxygen vacancies, nanodomains by local structural heterogeneity, high lattice anisotropy, higher relative density, and appropriate grain size.