ZTA ceramics was prepared by infiltration of alumina matrix with organic precursors of zirconia. Alumina matrix with zirconia grains located on the grain boundaries and in triple points resulted from the procedure. The grain growth hindrance in the alumina matrix due to pinning effect of the zirconia grains was observed. The effect was pronounced at zirconia content higher than 3 vol.%. It was observed that at room temperature fine matrix microstructure favours the existence of the zirconia grains with tetragonal symmetry. However, also transformation from tetragonal to monoclinic phase was observed, so that only 20 - 30 vol.% of zirconia was detected in tetragonal form after 180 minutes of sintering at 1500_C. The fracture toughness of the ZTA samples with the finest microstructure (mean grain size of alumina matrix 1.5 mm) and the highest zirconia content (18 wt.%) doubled (6.6 MPa.m)1/2, compared to the fracture toughness of the alumina matrix (t 3 MPa..m1/2) prepared under the same conditions. Microcracking accompanied with particle pull-out, crack deflection and crack branching were found to be the dominant mechanisms responsible for the fracture toughness enhancement.