The effect of Nd2O3 on voltage and microstructure of ZnO varistor was studied, and a theoretical analysis of the mechanism of the effect was conducted. The results show that the voltage of ZnO varistor increases with the increase of Nd2O3 content in the range of 0 mol%~0.04 mol%. But when the content of Nd2O3 is more than 0.04 mol%, the voltage of ZnO varistor decreases with the increase of the content. The microstructure analysis indicates that the minimal additive exists in ZnO grain boundary in the form of a new compound and hinders the movement of grain boundary, which reduces the size of ZnO grain size and makes the grain more uniform, and as a result, Nd2O3 improve the voltage of the varistor greatly.