We present a polymer complex solution method using a modified combustion synthesis procedure, for the production of well crystalline, sub-micron gadolinia-doped ceria powders of Ce0.9Gd0.1O1.95 composition. Polyethylene glycol of two different molecular weights (200 and 20000) was used as both fuel for the combustion and nucleating agent for the crystallization process. The synthesized materials were characterized using X-ray diffraction, thermal analysis, scanning electron microscopy, and optical and photoluminescence spectroscopy. The powders are quite similar, fully crystallized in a cubic fluorite-type phase with average crystallite size of about 70 nm and average particle size in the range 220–240 nm. UV-vis absorption spectra show the absorption edge at 3.26 eV. The presence of oxygen vacancies, confirmed indirectly by clear violet emission observed at 428 nm, originated from the 5D1 → 4F1 transition of Ce3+ions.