Gd and Yb elements have high chemical stability, which can stabilize the solid solution in ZrO2. Gd2O3 and Yb2O3 have high melting points, and good oxidation resistance in extreme environments, stable chemical properties. Therefore, Gd2O3 and Yb2O3 were added to ZrO2 to stabilize oxides, improve the high temperature stability, and effectively decrease the thermal conductivity at high temperature. In this work, 5 wt% Yb2O3 and 5 wt%, 10 wt%, 15 wt% Gd2O3 were doped into 8 wt% Y2O3 stabilized ZrO2 (8YSZ) powders as thermal barrier coating materials, and sintered at 1650 °C for 6 h, 12 h, 24 h. The effects of Gd2O3 addition on the microstructure, density, thermal conductivity, hardness, and fracture toughness of Gd2O3-Yb2O3-Y2O3-ZrO2 (GYYZO) bulk composite ceramics were investigated. It was found that the densification of the 8YSZ bulk and GYYZO bulk with 15 wt% Gd2O3 reached 96.89% and 96.22% sintered at 1650 °C for 24 h. With the increase of Gd2O3 addition, the hardness, elastic modulus and fracture toughness of the GYYZO bulk increased and the thermal conductivity and thermal expansion coefficient of the GYYZO bulk decreased. GYYZO bulk with 15 wt% Gd2O3 sintered at 1650 °C for 24h had the highest hardness, elastic modulus and fracture toughness of 15.61 GPa, 306.88 GPa, 7.822 MPa·m0.5, and the lowest thermal conductivity and thermal expansion coefficient of 1.04 W/(m·k) and 7.89 × 10−6/°C at 1100 °C, respectively. The addition of Gd2O3 into YSZ could not only effectively reduce the thermal conductivity but also improve the mechanical properties, which would improve the thermal barrier coatings’ performances further.