There has been significant interest in the bilayer system formed by ceria (CeO₂) and yttria-stabilized zirconia (YSZ). Multiple studies have explored these two materials individually; however, the interface formed by them remains largely unexplored because of its complex nature. In order to advance the fundamental science of such bilayered systems, in this work, a multiscale modeling study of the YSZ/CeO₂ interface was conducted. First, a realistic YSZ/CeO₂ interface model containing all the important microstructural features of the interface such as dislocations, point defects, and lattice strains was prepared by using classical molecular dynamics (MD) simulations. Then, the density functional theory was implemented to analyze the electronic properties of the YSZ/CeO₂ interface model prepared by MD. It was found that, at the interface, the overall strain in CeO₂ and YSZ is compressive and tensile, respectively, as expected; however, the local strain at the core of the dislocation is converse. At dislocations, CeO₂ was found to have tensile strain, whereas YSZ has compressive strain. The presence of tensile strain in CeO₂ at the core of the dislocations might contribute to the formation of oxygen vacancies and reduction of Ce⁴⁺ to Ce³⁺, as observed in experiments. Overall, this work for the first time integrates the classical and quantum simulations to prepare and analyze a realistic working class YSZ/CeO₂ interface, resulting in the long-sought explanation for the experimentally observed cerium reduction at the YSZ/CeO₂ interface.