The effects of CeO2 nanoparticles (NPs) on the system performance and the bacterial community dynamics in a sequencing batch reactor (SBR) were investigated, along with the fate and removal of CeO2 NPs within the SBR. Significant impact was observed on nitrification; NH4+-N removal efficiency decreased from almost 100% to around 70% after 6 days of continuous exposure to 1.0 mg/L of CeO2 NPs, followed by a gradual recovery until a stable value of around 90% after 20 days. Additionally, CeO2 NPs also led to a significant increase in the protein content in the soluble microbial products, showing the disruptive effects of CeO2 NPs on the extracellular polymeric substance matrix and related activated sludge structure. Denaturing gradient gel electrophoresis analysis showed remarkable changes in the bacterial community structure in the activated sludge after exposure to CeO2 NPs. CeO2 NPs were effectively removed in the SBR mainly via sorption onto the sludge. However, the removal efficiency decreased from 95 to 80% over 30 days. Mass balance evaluation showed that up to 50% of the NPs were accumulated within the activated sludge and were removed with the waste sludge.