The preparation of $Sm_2O_3$ doped $CeO_2$ in Igepal CO-520/cyclohexane reverse micelle solutions has been studied. In the present work, we synthesized nanosized $Sm_2O_3$ doped $CeO_2$ powders by reverse micelle process using aqueous ammonia as the precipitant; hydroxide precursor was obtained from nitrate solutions dispersed in the nanosized aqueous domains of a micro emulsion consisting of cyclohexane as the oil phase, and poly (xoyethylene) nonylphenylether (Igepal CO-520) as the non-ionic surfactant. The synthesized and calcined powders were characterized by Thermogravimetry-differential thermal analysis (TGA-DTA), X-ray diffraction analysis (XRD), and Transmission electron microscopy (TEM). The crystallite size was found to increase with increase in water to surfactant (R) molar ratio. Average particle size and distribution of the synthesized $Sm_2O_3$ doped $CeO_2$ were below 10 nm and narrow, respectively. TG-DTA analysis shows that phase of $Sm_2O_3$ doped $CeO_2$ nanoparticles changed from monoclinic to tetragonal at approximately $560^{circ}C$. The phase of the synthesized $Sm_2O_3$ doped $CeO_2$ with heating to $600^{circ}C$ for 30 min was tetragonal $CeO_2$. This study revealed that the particle formation process in reverse micelles is based on a two step model. The rapid first step is the complete reduction of the metal to the zero valence state. The second step is growth, via reagent exchanges between micelles through the inter-micellar exchange.