Phase transformations and the resultant microstructures of partially-stabilized zirconia (PSZ) are briefly reviewed with a special interest in the nature of phase transformations. The martensitic tetragonal-to-monoclinic transformation, which plays a principal role in toughening of PSZ, accompanies lattice defects such as twins or dislocations in the product phase m-ZrO2. The diffusionless cubicto-tetragonal (c-t) transformation is characterized by two different microstructures; one with the domain structure whose boundaries have curvilinear features showing the contrast of anti-phase domain boundaries in ordered alloys, and the other with thin-plates or 1enticular features. It seems that the diffusionless c-t transformation is always completed by an initial development of domain structure over the entire region of samples. The thin plates or lenticular features may be subsequently formed by the strain accommodation. The nature of the diffusionless c-t transformation is the second order phase transition. The precipitation of t-ZrO2 in the c-ZrO2 matrix is commonly found in alloys heat-treated in the cubic/tetragonal two-phase region. Together with the usual precipitation structures, the modulated or tweed structure is also formed at an early stage of aging. The origin of these microstructures, and the nature of the diffusional reaction or precipitation is discussed in this paper.