This work investigates the effects of Cr$_2$O$_3$ and oxygen potential on grain growth and densification of UO$_2$ pellets. Powder mixtures of UO$_2$ and 0.03-0.4wt% Cr$_2$O$_3$ were pressed and sintered in 3 different gas atmospheres: the $H_2O$-to-H$_2$ ratios were 5$ imes$10$^{-4}$ , 1$ imes$10$^{-2}$ and 3$ imes$10$^{-2}$ In the first gas atmosphere the Cr$_2$O$_3$ contents below 0.2 wt% have an insignificant effect on grain size, but the Cr$_2$O$_3$ contents more than 0.3 wt% promote grain growth in the inner zone of a pellet but not in the outer zone. In both the second and third atmospheres, the grain size increases with the Cr$_2$O$_3$ content. With the same level of Cr$_2$O$_3$ content the grain size is larger in the second atmosphere than in the third. Sintering behavior and developed microstructure are discussed in terms of the reduction of C$r^2$O$^3$ to Cr, the dissolution of C$r^2$O$^3$ in UO$_2$, and liquid phase sintering.