In the present work, CeO2 nanoparticles with abundant surface defects and controlled particle size were synthesized by separate nucleation and aging steps followed by a calcination treatment and applied as a multifunctional additive for the preparation of a PVC–CeO2 composite film. The characterization results demonstrated that the as-prepared PVC–CeO2 composite film could completely block UV-C, 98.6% UV-B, and more than 50% UV-A with high transparency in visible light; meanwhile, its initial pyrolysis temperature could be put off by 16 °C compared to that of pristine PVC. Density functional theory calculations and experimental results revealed that the enhanced thermal stability/photostability of PVC–CeO2 composite films is mainly attributed to the close interaction and good compatibility between the CeO2 nanoparticle and PVC matrix, enhanced HCl-capture capability of highly dispersed CeO2 nanoparticles, and the formation of the coordinate complex between Ce atoms in defect-rich CeO2 and labile Cl atoms in PVC main chains. Furthermore, the excellent UV absorption capacity of CeO2 nanoparticles could endow the PVC–CeO2 composite film with significantly improved UV-shielding efficiency. This work provides a new clue for the rational design and synthesis of rare earth-based additives, which are expected to be used in polymers, especially in PVC-based functional materials.