In this study, the dielectric characteristics of two types of natural esters modified into nanofluids are studied. The AC breakdown voltage was investigated for colloidal Fe₂O₃ and SiO₂ nanoparticles effectively scattered in natural ester oil. The experimental results identify an increase in the breakdown voltage of the nanofluid with colloidal Fe₂O₃ conductive nanoparticles. In contrast, the breakdown voltage was reduced by adding SiO₂ nanoparticles in the same matrix. The potential well distribution of the two different types of nanoparticles was also calculated in order for the results of the experiment to be explained. The dielectric losses of the colloidal nanofluid are compared with the matrix oil and studied at 25 °C and 100 °C in the frequency regime of 10⁻¹–10⁶ Hz. The experimental data and the theoretical study reveal that conductivity along with the permittivity of nanoparticles constitute a pivotal parameter in the performance of nanofluid. Specific concentrations of nanoparticles with different electrical conductivity and permittivity than those of matrix oil increase the breakdown voltage strength. Simultaneously, the addition of nanoparticles having electrical conductivity and permittivity comparable to the matrix oil results in reducing the breakdown voltage.