The effects of increasing amounts of MnO additions on the microstructures, phase stability, and mechanical properties of ZrO2–12 mol % CeO2 and ZrO2–12 mol% CeO2–10 wt.% Al2O3 were studied. MnO suppressed grain growth in ZrO2–12 mol% CeO2, while enhancing the mechanical properties significantly (strength = 557 MPa, fracture toughness = 9.3 MPa at 0.2 wt.% MnO). The enhanced mechanical properties were achieved despite an increased stability of the tetragonal phase, as evidenced by a lower burst transformation temperature (Mb) and a reduced volume fraction of the monoclinic phase on the fracture surface. In ZrO2–12 mol% CeO2–10 wt.% Al2O3, the addition of MnO suppressed the grain size of ZrO2, while promoting grain growth and changing the morphology of Al2O3. More significantly, the stability of the tetragonal ZrO2 phase decreased (high Mb temperature) with a concurrent increase in fracture toughness (13.2 MPa at 2 wt.% MnO) and transformation plasticity (1.2% in four-point bending). The widths of the transformation zones observed adjacent to the fracture surfaces showed a consistent inverse relation to the transformation yield stress, as would be expected from the mechanics of stress-induced phase transformation at crack tips. The improvements in mechanical properties obtained in the base Ce–TZP and the Ce–TZP–Al2O3 composite ceramics with the addition of MnO are critically examined in the context of transformation toughening and other possible mechanisms.