In the present work, compaction, sintering behavior, and mechanical properties of Al2O3–CeO2 composite nanopowders were investigated. Al2O3 and Al2O3–CeO2 composite nanopowders were prepared by a sol–gel method. The effect of CeO2 on compressibility, sintering rate, final density, and mechanical properties was studied. The aggregation strength of nanopowders reduced from 158 to 101 MPa by adding 5 wt% CeO2. The amount of CeO2 had a strong effect on the sintering behavior and final microstructure of nanopowders and it inhibited alumina grain growth and suppressed densification process. The activation energy for grain growth increased from 428 to 554 kJ/mol by adding 5 wt% CeO2 to the nanopowders. The addition of 5 wt% CeO2 improved fracture toughness (by 28%) and flexural strength (by 17%) with respect to monolithic Al2O3.