Doping of TAGS-85 with 1 at% Ce or Yb forms a dilute magnetic semiconductor system with non-interacting localized magnetic moments that obey the Curie law. X-ray diffraction patterns and slight broadening in 125Te NMR, attributed to paramagnetic effects, suggest that Ce and Yb atoms are incorporated into the lattice. 125Te NMR spin-lattice relaxation and Hall effect show similar hole concentrations of ≈1021 cm−3. At 700 K, the electric conductivity of the Ce- and Yb-doped samples is similar to that of neat TAGS-85, while the thermal conductivity and the Seebeck coefficient are larger by 6% and 16%, respectively. Possible mechanisms responsible for the observed increase in thermopower may include i) formation of resonance states near the Fermi level and ii) carrier scattering by lattice distortions and/or by paramagnetic ions. Due to the increase in the Seebeck coefficient up to 205 μV K−1, the thermoelectric power factor of Ce- and Yb-doped samples reaches 36 μW cm−1 K−2, which is larger than that measured for neat TAGS-85, 27 μW cm−1 K−2. The increase in the Seebeck coefficient overcomes the increase in the thermal conductivity, resulting in a total increase of the figure of merit by ≈25% at 700 K compared to that observed for neat TAGS-85.