The base-metal electrode multilayer ceramic capacitors for future application require much thinner dielectric layers (< 1 mu m). Therefore, the grain size and uniformity of dielectric ceramics should be effectively controlled. In this paper, a two-step sintering (TSS) method has been utilized to prepare the ultrafine-grained X7R BaTiO3 ceramics in reducing atmosphere with the average grain size below 200 nm. And the influence of TSS schedule on the microstructure (such as bulk density, grain size) and dielectric properties is discussed in detail. Furthermore, the development of core-shell structure and corresponding temperature coefficient of capacitance characteristics during the intermediate stage of TSS process has been systematically investigated.