The formation of BaCeO3 and its effects on microstructure were studied in sintered/melt-textured Y-Ba-Cu-O oxides containing 5 wt. % CeO2 and various amounts of Y2Ba1Cu1O5. The added CeO2 was converted to fine particles of BaCeO3 near 930 °C, which is the conventional sintering temperature for Y-Ba–Cu-O. Y2Ba1Cu1O5 and CuO are formed as by-products of the reaction between CeO2 and Y1Ba2Cu3O7−y phase. The CeO2 addition reduced the particle size of Y2Ba1Cu1O5 which was trapped in the Y1Ba2Cu3O7−y matrix after the melt-texture growth. During the peritectic decomposition stage of Y1Ba2Cu3O7−y phase into Y2Ba1Cu1O5 and liquid phase, the morphology of the decomposed Y2Ba1Cu1O5 was changed from a blocky shape in the undoped sample to an acicular shape of high anisotropy in the CeO2-added sample. The formation of the highly anisotropic Y2Ba1Cu1O5 particles appears to be responsible for the refinement of Y2Ba1Cu1O5 particle after the melt-texture processing.