Nanocrystalline Sm2O3 and Sm2O3-MgO powders have been prepared by spray pyrolysis of aqueous precursor solutions containing citric acid as a complexant. Synthesized powders consist of hollow spheres with thin shells. The two-phase samples exhibit an improved microstructural stability compared with pure Sm2O3. The microstructure before and after various heat treatments has been investigated by high-resolution transmission electron microscopy, scanning electron microscopy, nitrogen adsorption, and X-ray diffraction.