In the semiconductor fabrication industry, high-power plasma is indispensable to obtain a high aspect ratio of chips. For applications to ceramic components including the dielectric window and ring in the semiconductor etching chamber, the Y2O3 ceramics have attracted interest recently based on excellent erosion resistance. When a high bias voltage is applied in a plasma environment containing fluorine gas, both chemical etching and ion bombardment act simultaneously on the ceramic components. During this etching process, severe erosion and particles generated on the ceramic surface can have effects on overall equipment effectiveness. Herein, we report the outstanding plasma etching resistance of Y2O3–MgO nanocomposite ceramics under a CF4/Ar/O2 gas atmosphere; the erosion depth of this material is 40–79% of that of the reference materials, Y2O3 ceramics. In a robust approach involving effective control of the microstructure with different initial particles and sintering conditions, it is possible to understand the relationship between etching behavior and microstructure evolution of the nanocomposite ceramic. The results indicate that the nanocomposite with fine and homogeneous domain distribution can decrease particle generation and ameliorate its life cycle; accordingly, this is a promising alternative candidate material for ceramic components in plasma chambers.