Nanosized incubational domain was observed in 10 at.% gadolinium-doped ceria (GDC) using high-resolution transmission electron microscopy. Dislocations were extensively observed in 10 at.% GDC instead of heavily doped 25 at.% GDC. By Fast Fourier Transform and Inverse Fast Fourier Transform analysis, it was noticed that the incubational domain existing in 10 at.% GDC has different lattice spacing and orientation from the neighboring ceria matrix. Furthermore, dislocations were usually observed in the interface region between the incubational domain and the ceria matrix. Based on experimental results, the formation mechanism of dislocation associated incubational domain in lightly gadolinium-doped ceria is rationalized.