Alumina has got some excellent properties like chemical inertness, thermal and mechanical strength against hazardous environment. Alumina is a good ceramic material which is being used for structuralapplications. To enhance the toughness and strength of the body some Zirconia is also used with it. The use of Zirconia in alumina is known as toughening of alumina. One difficulty arises, when alumina and alumina toughened composite are sintered , because the low sinterability of Alumina-Zirconia forced the compact to give very low density body. To overcome this problem alumina and alumina composites are made from slurry method which gives nearly theoretical density. The combined effect of alumina and Zirconia on the phase transformation and microstructure development of heat-treated Alumina-Zirconia composites has been studied. Slurry is prepared by adding water, dispersant, binder and anti-foaming agent. In the present study, Sintering schedule is optimized and kept constant for all samples. After sintering, mechanical behaviour of the composite has been studied.