A composite oxide containing samaria-doped ceria [SDC, (CeO2)(0.8)(SmO1.5)(0.2)] and yttria-stabilized zirconia [YSZ, (ZrO2)(0.92)(Y2O3)(0.08)] was developed as an electrolyte for a solid oxide fuel cell (SOFC). A SOFC with a YSZ electrolyte was characterized by a high open-circuit voltage (OCV) and a steep decrease in voltage, V, with increasing current, I, whereas that with a SDC electrolyte exhibited a low OCV and a gradual decrease of its V-I curve. A biphasic electrolyte microstructure with SDC and YSZ was proposed in which SDC grains are dispersed in a YSZ matrix. In this composite structure, the electronic conduction caused by reduction of the SDC was effectively blocked by the YSZ matrix. An SOFC with this composite electrolyte offered the advantages of YSZ with its high OCV and SDC with its gradual decrease of the V-I curve. The SDC content and the particle size significantly affected the power-generation characteristics of a cell with this composite electrolyte. The electrode polarization was significantly lowered by using the SDC or the composite electrolyte.