The use of cerium compounds as diesel fuel catalyst results in the emission of cerium oxide nanoparticles (CeO2) in the exhaust. This study characterized the potential effects of CeO2 exposure on lung toxicity. Male Sprague Dawley rats were exposed to CeO2 by a single intratracheal instillation at 0.15, 0.5, 1, 3.5 or 7 mg/kg body weight. At 1 day after exposure, CeO2 significantly reduced NO production, but increased IL-12 production, by alveolar macrophages (AM) in response to ex vivo lipopolysacchride (LPS) challenge, and caused AM apoptosis, through activation of caspases 9 and 3. CeO2 exposure markedly increased suppressor of cytokine signaling-1 at 1-day and elevated arginase-1 at 28-day post exposure in lung cells, while osteopontin was significantly elevated in lung tissue at both time points. CeO2 induced inflammation, cytotoxicity, air/blood barrier damage, and phospholipidosis with enlarged AM. Thus, CeO2 induced lung inflammation and injury in lungs which may lead to fibrosis.