Zirconia mullite (MUZ) and Y2O3–MUZ composites were synthesised by plasma melting, plasma sintering and conventional sintering techniques. Mixtures of tetragonal and cubic phases have been observed in all the processed Y2O3–MUZ composites. This observation infers that though the available temperature in plasma sintered and conventionally sintered MUZ specimens is not sufficient for the transformation of monoclinic to cubic zirconia, the addition of Y2O3 favours this transformation and also stabilises the cubic zirconia phase at room temperature. The optical absorption studies completely reflect the improvement in optical band gap of Y2O3–MUZ composites to prove it as a suitable candidate for refractory applications. The bulk density, hardness and higher crystalline nature of plasma sintered composites indicate that better quality of products can be synthesised by direct current extended arc thermal plasma heating technique within a short duration of time.