Abstract Microstructures and thermal insulation capability of plasma-sprayed nanostructured ceria stabilized zirconia (CSZ; ZrO2–4.5 wt.%Y2O3–25 wt.%CeO2) and conventional yttria stabilized zirconia (YSZ; ZrO2–8 wt.%Y2O3) coatings have been investigated. The nanostructured CSZ coatings mainly contained t-ZrO2, t-Zr0.82Y0.18O0.91, t-Zr0.82Ce0.18O2 and CeO2 phases and presented two kinds of microstructures, nanosized particles bound among each other and columnar grain structures. The conventional YSZ coatings consisted mainly of t-ZrO2 phases with columnar grain structures. The nanostructured CSZ coatings had higher thermal insulation capability than the conventional YSZ coatings. For 400 μm thick coatings, the temperature drop (ΔT) at 1350 °C of the nanostructured CSZ coating increased by 56.6% compared with that of the conventional YSZ coating. It is mainly associated with Ce having a much heavier atomic weight and a bigger ion radius than Y, and the coating having finer grain size and more complicated microstructures. Therefore, it is favourable to select the nanostructured CSZ as the top coating for improving the thermal insulation capability of thermal barrier coatings.