Polypyrrole (PPy) and polypyrrole/cerium oxide nanocomposite (PPy/CeO2) were prepared by the chemical oxidative method in an aqueous medium using anhydrous ferric chloride (FeCl3) as an oxidant. The successful formulation of materials was confirmed by Fourier transform infrared spectroscopy (FT-IR), X-ray diffraction (XRD), thermogravimetric analysis (TGA), scanning electron microscopy (SEM), and transmittance electron microscopy (TEM). A four-in-line probe device was used for studying DC electrical conductivity and ammonia vapor sensing properties of PPy and PPy/CeO2. The significant improvement in both the conductivity and sensing parameters of PPy/CeO2 compared to pristine PPy reveals some synergistic/electronic interaction between PPy and cerium oxide nanoparticles (CeO2 NPs) working at molecular levels. The initial conductivity (i.e., conductivity at room temperature) was found to be 0.152 Scm−1 and 1.295 Scm−1 for PPy and PPy/CeO2, respectively. Also, PPy/CeO2 showed much better conductivity retention than pristine PPy under both the isothermal and cyclic ageing conditions. Ammonia vapor sensing was carried out at different concentration (0.01, 0.03, 0.05, 0.1, 0.2, 0.3, 0.4, and 0.5 vol %). The sensing response of PPy/CeO2 varied with varying concentrations. At 0.5 vol % ammonia concentration, the % sensing response of PPy and PPy/CeO2 sensor was found to be 39.1% and 93.4%, respectively. The sensing efficiency of the PPy/CeO2 sensor was also evaluated at 0.4. 0.3, 0.2, 0.1, 0.05, 0.03, and 0.01 vol % ammonia concentration in terms of % sensing response, response/recovery time, reversibility, selectivity as well as stability at room temperature.