In this work, we report a dramatic enhancement in ethanol sensing characteristics of NiO hollow nanostructures via decoration with In2O3 nanoclusters. The pure NiO and 1.64–4.41 atom % In-doped NiO and In2O3-decorated NiO hollow spheres were prepared by ultrasonic spray pyrolysis, and their gas sensing characteristics were investigated. The response (the ratio between the resistance in gas and air) of the In2O3-decorated NiO hollow spheres to 5 ppm ethanol (C2H5OH) was 9.76 at 350 °C, which represents a significant improvement over the In-doped NiO and pure NiO hollow spheres (3.37 and 2.18, respectively). Furthermore, the 90% recovery time was drastically reduced from 1880 to 23 s, and a selective detection of ethanol with negligible cross-response to other gases was achieved. The enhanced gas response and fast recovery kinetics were explained in relation to the thinning of the near-surface hole accumulation layer of p-type NiO underneath n-type In2O3, the change of charge carrier concentration, and the variation of oxygen adsorption.