The synthesis of cerium dioxide nanoparticles using an inverse microemulsion technique and precipitation method was investigated. Cerium hydroxide nanoparticles were synthesized by adding diluted ammonia to n-heptane-surfactant-cerium nitrate system. The micelle and particle size in the range of 5-12 nm were controlled by varying the molar water to surfactant ratio and analyzed by dynamic light scattering (DLS), small angle X-ray scattering (SAXS) and high-resolution transmission electron microscopy (HRTEM). Cerium hydroxide nanoparticles were isolated and subsequently treated at 100-600 °C to obtain nanoscale ceria. Crystallite sizes of cerium dioxide in the range of 6-16 nm were estimated by Scherrer analysis by X-ray diffraction (XRD) and HRTEM. The catalytic activity of particles annealed at 400 and 600 °C in soot combustion reactions was characterized by temperature-programmed oxidation (TPO) indicating a size-dependant activity. Crystallite sizes and catalytic stability of elevated ceria systems were tested in second combustion cycles.