The synthesis of ultrafine cerium dioxide (CeO2) powders via mechanochemical reaction and subsequent calcination was studied. Anhydrous CeCl3 and NaOH powders, along with NaCl diluent, were mechanically milled. A solid-state displacement reaction—CeCl3+ 3NaOH → Ce(OH)3+ 3NaCl—was induced during milling in a steady-state manner. Calcination of the as-milled powder in air at 500°C resulted in the formation of CeO2 nanoparticles in the NaCl matrix. A simple washing process to remove the NaCl yielded CeO2 particles ∼10 nm in size. The particle size was controlled in the range of ∼10–500 nm by changing the calcination temperature.