The microstructural development of YBa2Cu3Oy (Y-123) coated conductors based on the ion-beam-assisted deposition (IBAD) of yttria-stabilized zirconia (YSZ) to produce a biaxially textured template is presented. The architecture of the conductors was Y-123/CeO2/IBAD YSZ/Inconel 625. A continuous and passivating Cr2O3 layer forms between the YSZ layer and the Inconel substrate. CeO2 and Y-123 are closely lattice-matched, and misfit strain is accommodated at the YSZ/CeO2 interface. Localized reactions between the Y-123 film and the CeO2 buffer layer result in the formation of BaCeO3, YCuO2, and CuO. The positive volume change that occurs from the interfacial reaction may act as a kinetic barrier that limits the extent of the reaction. Excess copper and yttrium generated by the interfacial reaction appear to diffuse along grain boundaries and intercalate into Y-123 grains as single layers of the Y-247, Y-248, or Y-224 phases. The interfacial reactions do not preclude the attainment of high critical currents (Ic) and current densities (Jc) in these films nor do they affect to any appreciable extent the nucleation and alignment of the Y-123 film.