The physicochemical properties of nanoparticles determine their interaction with living organisms. Four different cerium oxide nanoparticles, including commercial materials, were characterized and compared with a micron-sized ceria. The formation of aggregates as well as ζ-potential, surface area, and chemical composition were determined. The formation of primary particle aggregates was a slow process that led to different particle sizes depending on the composition of the medium. In this paper, we describe the toxicity of cerium oxide for the self-luminescent cyanobacterial recombinant strain Anabaena CPB4337 and the green alga Pseudokirchneriella subcapitata. The toxicity for Anabaena exposed to nanoparticles in pure water for 24 h ranged from 0.27 to 6.3 mg/l; P. subcapitata EC₅₀ (yielded effective concentration of nanoparticles that inhibits the cellular function of interest by 50%) values in the 2.4–29.6 mg/l range. Images of both organisms showed membrane disruption and highly damaged cells. Free cerium was highly toxic for both organisms, but the negligible amount found dissolved in the nanoparticle suspensions could not explain the observed toxic effect of nanoceria on the aquatic organisms; the dissolution of zinc could contribute to the toxicity of bulk material but could not explain the toxic effect of nanoceria either. We found no evidence of nanoparticle uptake by cells, but our observations suggested that their toxic mode of action required direct contact between nanoparticles and cells; in the case of the cyanobacterium, cells completely coated by layers of ceria nanoparticles were observed. Cell damage most probably took place by cell wall and membrane disruption; further research is needed to find out whether the oxidative activity of ceria could be responsible.