Ce0.6Zr0.4O2 (C60Z) powders were synthesized using the chemical coprecipitation method to investigate the phase separation mechanism. The phase separation of C60Z powders occurred during the heating step (>1100°C), suggesting that it might be a thermally activated process. The activation energy for the phase separation of C60Z was 398 (±20) kJ/mol and the Avrami parameter was ~1.0, indicating that the phase separation may be interface controlled. We suggested that Zr+4 diffusion played an important role in C60Z phase separation due to the ionic radius of Zr+4 being smaller than that of Ce+4. The C60Z powders tended to aggregate, which induced the driving force for the phase separation resulting from the surface energy difference between the particle surface and the interface. The phase separation behavior of C60Z powders was very similar to the initial stage of sintering. After high-temperature treatment, more Zr+4 ions diffused to the interface between C60Z particles to lower the surface energy of the system than did Ce+4 ions, which resulted in the composition gradually being changed and phase separation. Therefore, the phase separation of C60Z powders can be effectively decreased by the addition of Al+3, which suppresses aggregation.