In this article the structural and electronic properties of CeO2 and Ce1-xZrxO2 nanoparticles are investigated using time-resolved X-ray diffraction, X-ray absorption near-edge spectroscopy (XANES), and density functional calculations. CeO2 and Ce1-xZrxO2 (x less than or equal to 0.5) particles in sizes between 4 and 7 nm were synthesized using a novel microemulsion method. The atoms in these nanoparticles adopted a cubic or pseudocubic crystal structure. The lattice constant decreased with increasing Zr content, varying from 5.4019 Angstrom in CeO2 to 5.3066 Angstrom in Ce0.5Zr0.5O2. Within the cubic structure, the Zr atoms exhibited structural perturbations that led to different types of Zr-O distances and nonequivalent O atoms in the Ce1-xZrxO2 compounds. Upon the addition of Zr to CeO2, the Zr positive charge in Ce1-xZrxO2 is smaller than in pure ZrO2 whereas the Ce positive charge is larger than in pure CeO2. Combination of these geometrical and electronic effects produced Zr L-III-edge and O K-edge XANES spectra with a distinctive line-shape not seen in pure ZrO2 or CeO2. The doping with Zr increases the thermal stability of the ceria nanoparticles and their chemical reactivity toward hydrogen. At temperatures between 300 and 900 degreesC, the Ce1-xZrxO2 nanoparticles reacted with H-2 and water evolved into gas phase. XANES showed the generation of Ce3+ cations (without reduction of Zr4+) but an absence of diffraction lines different from fluorite-type ones was noted. There was an expansion in the unit cell of the reduced particles probably as a consequence of a partial Ce4+ --> Ce3+ transformation and the sorption of hydrogen into the bulk of the material. The Ce1-xZrxO2 nanoparticles interact with H-2 and reduce at lower temperatures than bulk Ce1-xZrxO2 systems. This important difference could originate in an enhancement in chemical reactivity characteristic of nanostructured materials.