ZrO 2 ) 1-x (Gd 2 O 3 ) x (x= 0.028-0.04) is heat-treated at 1600°C in air or in vacuum. Partially gadolinia-stabilized zirconia crystals are grown by the skull melting technique. The effect of annealing on the phase compositions, structures, and mechanical properties of the crystals is studied using X-ray diffraction, Raman spectroscopy, transmission electron microscopy, and indentation. A comparison with previously obtained data on the structure and properties of crystals after growth shows that annealing the crystals leads to the redistribution of gadolinia between the tetragonal phases: the t phase is depleted of gadolinia while the t' phase becomes enriched. The gadolinia-enriched t' phase undergoes multistage twinning. Thus, the sizes of the twins in the t' phase are far smaller than those in the t phase. Annealing the crystals increases their fracture toughness, and this increase is larger for all crystals after air annealing. The increase in the fracture toughness of the crystals is caused by a decrease in the gadolinia concentration in the transformable t phase, which enhances the effect of the transformation hardening mechanism. The fracture toughness of the crystals is further increased by the ferroelastic hardening mechanism, the effect of which is enhanced with an increase in the quantity of the t' phase in the crystals.