It is known that 1.0 at.% is the lowest amount of ZrO2 which can be used for the sintering of well-balanced Y2O3 ceramics to ensure both transparency and strength. In this work, a highly transparent Y2O3 ceramic material doped with a reduced amount of ZrO2 (0.5 at.%) was fabricated by means of a hot-press sintering method at a temperature as low as 1600°C using commercial powders. The in-line transmittance of the 0.5 at.% ZrO2-doped Y2O3 sample (2 mm thick) is 80.8% at 1100 nm and 72.2% at 400 nm with an average grain size of 1.06 μm. By reducing the ZrO2 content from 1.0 to 0.5 at.%, the thermal conductivity is increased by 18.2% with only a slight decline in the strength and the band gap becomes broader. Consequently, the Hasselman mild-thermal-shock figure of merit of the developed specimen increases by 13.0% overall. These results indicate that this Y2O3 ceramic has potential for use as a laser host or an infrared window material used on Mach-speed applications.