The effect of Gd2O3 on the electrical properties of (Co, Nb)-doped SnO2 varistors was investigated. It was found that the nonlinear coefficient presents a peak of α = 30 for the sample doped with 1.5mol% Gd2O3. The increase of the breakdown electrical field from 325V/mm to 1560V/mm with increasing Gd2O3 concentration is mainly attributed to the decrease of the grain size. The decrease of relative density and resistance of grain boundary indicate that Gd2O3 should be a two-sided dopant and the nonlinear coefficient peak was explained. To illustrate the grain-boundary barrier formation of (Gd, Co, Nb) doped SnO2 varistors, a modified defect barrier model was introduced, in which the negatively charged acceptors substituting for Sn ions should not be located at the grain interfaces instead at SnO2 lattice sites of depletion layers.