Lead zirconate titanate (PZT)-based ceramics are used in numerous advanced applications, including sensors, displays, actuators, resonators, chips; however, the poor mechanical characteristics of these materials severely limits their utility in composite materials. To address this issue, we herein fabricate transgranular type PZT ceramic nanocomposites by a novel method. Thermodynamically metastable single perovskite-type Pb0.99(Zr0.52+xTi0.48)0.98Nb0.02O3+1.96x powders are prepared from a citrate precursor before both monoclinic and tetragonal ZrO2 nanoparticles ranging from 20 to 80 nm are precipitated in situ at a sintering temperature of 1260 °C. The effects of ZrO2 content on the microstructure, dielectric, and piezoelectric properties are investigated and the mechanism, by which ZrO2 toughened PZT is analyzed in detail. The ZrO2 nanoparticles underwent a tetragonal to monoclinic phase transition upon cooling. The fracture mode changed from intergranular to transgranular with increasing ZrO2 content. The incorporation of ZrO2 nanoparticles improved the mechanical and piezoelectric properties. The optimized piezoelectric properties (εT33/ε0 = 1398, tan δ = 0.024 d33 = 354 pC N−1, kp = 0.66 Qm = 78) are obtained when x = 0.02. Tc initially increased and subsequently decreased with increasing ZrO2 content. The highest Tc = (387 °C) and lowest εT33/ε0 was obtained at x = 0.01.