Y 2 O 3 -stabilized ZrO 2 (YSZ) ceramics have been used for various engineering applications or as a solid electrolyte in oxygen sensors and fuel cells. The performance in YSZ strongly depends on the microstructure which is directly determined by the characteristic of raw powder. In this paper, the synthetic methods of YSZ powder and its starting material are first overviewed, and then the formation mechanism of YSZ powder is explained, focusing the hydrolysis process which is industrially adopted. Next, microstructural development during sintering of the hydrolytic YSZ powder is summarized, focusing Y 2 O 3 -stabilized tetragonal ZrO 2 polycrystal (Y-TZP) with excellent mechanical properties among YSZ. The author finally introduces that based on the hydrolytic process technique and microstructural knowledge, low temperature degradation that is fatal shortcoming of Y-TZP can be resolved by controlling the grain-boundary nanostructure and chemical composition distribution in Y-TZP.