Alumina-zirconia composite powders containing 10, 12.5, 15 or 20 wt% zirconia were prepared by spray-drying the hydroxide gels. These powders were calcined at 650 and 950 °C. The spray-dried as well as the calcined powders were characterized by means of Coulter counter, Sorptometer, infrared spectroscopy (i.r.), scanning electron microscopy (SEM), thermogravimetric analysis (TGA) and X-ray diffraction (XRD). Initially the spray-dried powders are amorphous and spherical in shape with a diameter of 6 μm and crystallize after calcination treatment at 950 °C. Sintered density of the 950 °C calcined powder compacts was higher than 650 °C calcined powder compacts. Compacts made from 650 °C treated powders retained 100% tetragonal phase after sintering irrespective of composition. Some amount of tetragonal phase is transformed into monoclinic phase in the composites containing higher amount of zirconia in the sintered compacts made from 950 °C calcined powders. © 1995 Chapman & Hall.