A novel CeO2/MgAl2O4 composite coating, fabricated via a cathode plasma electrolytic deposition (CPED) technique followed by hydrothermal synthesis, was developed in this study to explore its potential application as corrosion protection for AZ31 magnesium alloys. The microstructure observed through scanning electron microscopy indicated that reducing the duty cycle of the power source within a reasonable range during the CPED process was beneficial to form a uniform and dense MgAl2O4 coating, which served as an ideal adhesive matrix for a uniform CeO2 coating as the outermost layer. The results of electrochemical impedance spectra and neutral salt spray tests showed that the decoration of the CeO2 layer significantly improved the corrosion resistance of the CeO2/MgAl2O4 composite coating compared to the single MgAl2O4 coating and bare substrate. Cross-cut tests revealed that the adhesion of the MgAl2O4 coating and the CeO2/MgAl2O4 composite coating were both excellent due to the strong binding between the MgAl2O4 coating and the substrate.