The fissile fuel loss in tungsten (W) based ceramic-metal (Cermet) element used in nuclear thermal propulsion is of great importance. In this study, the W-Y2O3 composite matrix was manufactured tentatively by Spark Plasma Sintering (SPS) to relieve the fuel loss. Performance evaluation of hydrogen (H2) permeation and diffusion behaviors in the matrix was carried out by a gas permeation device. The results indicate that the diffusion coefficient of H2 in the pure W matrix is nearly 10 times larger than that in the W-Y2O3 matrix at a test temperature of 823 K. Based on the results, a careful investigation of the fuel loss mechanism of the Y2O3 dispersed W matrix was performed. SEM and TEM showed that the fine Y2O3 particles are distributed along grain boundaries of the W ternary-phase and present a distinct transition region of about 10 nm between the Y2O3 and W phases. In particular, the crystallographic orientation relationship suggests that a semi-coherent structure is formed at the W/Y2O3 phase interface: (0 1 −1) W || (1 0 −1) Y2O3 and [0 1 1] W || [1 1 1] Y2O3. This semi-coherent structure is favorable for binding the two phases together tightly, thus hindering the inward diffusion of H2 greatly. Moreover, the improved density and refined size of the W grains are achieved. Therefore, there is no doubt that the dispersion of Y2O3 is beneficial for lowering the H2 diffusion rate in the W matrix and thus reducing the fuel loss effectively. This work furthers our understanding of the key role of Y2O3 in the W matrix used in nuclear thermal propulsion.