Y2O3-stabilized ZrO2 (YSZ) has been the material of choice for thermal barrier coatings (TBCs) in the past decades, yet its phase decomposition limits its application above 1200 °C. In this study, Gd2O3 and Yb2O3 co-doped YSZ powders were produced, in which some amounts of monoclinic (m) phase were introduced into the cubic (c) phase matrix. XRD results showed that the fabricated powders obtained by a solid phase synthesis were composed of m and c phases, and hat the m phase content decreased in a sequence of 4Gd-2Yb-4Y, 2Gd-2Yb-6Y and 2Gd-4Yb-4Y powders. This indicated that Yb3+ is an excellent stabilizer in the ZrO2-based lattice, which could largely suppress the formation of the m phase. The m phase content in the powders was almost kept unchanged with heating at 1300 °C, which could provide a toughening effect to the ceramic. All the powders exhibited no obvious sintering at 1300 °C for 150 h. As compared to YSZ, the three fabricated ceramics had lower thermal conductivities, and they increased in a sequence of 4Gd-2Yb-4Y, 2Gd-4Yb-4Y and 2Gd-2Yb-6Y.