This paper presents a method for synthesis of CeO2-Fe2O3 core-shell nanoparticles (CSNPs). These are shown to display enhanced ethanol sensing properties. Synthesis was done via a two-step process, starting with co-precipitation and followed by applying a sol-gel method. High resolution electron microscopy results revealed the core-shell nature of the particles. Surface morphological studies of the CSNPs showed a microcluster-like structure which is assumed to be responsible for the enhanced sensing response. X-ray photoelectron spectroscopy revealed valence states of Fe(III) and Ce(IV). The material was used in a resisitive sensor for ethanol vapor at room temperature (RT), at a typically applied voltage of 5 V. The response of the sensor is higher than that of pristine CeO2 or Fe2O3 sensors towards 100 ppm of ethanol at RT. The lower detection limit is 1 ppm (with a signal change of 23). The response and recovery times are as short as 3 and 7 s, respectively. The sensing mechanism is discussed in detail with respect to n-n heterojunctions formed between n-CeO2 and n-Fe2O3, high catalytic activity of the Fe2O3, and microcluster-like structures of the particles. Graphical abstractSchematic representation of gas sensing mechanism of CeO2-Fe2O3 core-shell nanoparticles (c) along with their morphological images (a&b).