Fine‐grained, homogeneously dispersed alumina‐zirconia and zirconia powders were prepared by evaporative decomposition of solutions. The pure metastable tetragonal zirconia powder transformed to the monoclinic form when it was heated to 1150°C. The zirconia in the alumina‐zirconia powder, which was also in the tetragonal form, did not transform when the powder was heated to 1150° C. This result is explained in terms of inhibition of coarsening of the zirconia grains by the alumina particles.