Alumina toughened zirconia (ATZ) and zirconia toughened alumina (ZTA) are currently the materials of choice to meet the need for tough, strong, and bioinert ceramics for medical devices. However, the mechanical properties of ZrO2/Al2O3 dispersion ceramics could be considerably increased by reducing the corresponding grain sizes and by improving the homogeneity of the phase dispersion. Here, we prepare nanoparticles with an intraparticular phase distribution of Zr(1−x)AlxO(2−x/2) and (γ-, δ-)Al2O3 by the simultaneous gas phase condensation of laser co-vaporized zirconia and alumina raw powders. During subsequent spark plasma sintering the zirconia defect structures and transition alumina phases transform to a homogeneously distributed dispersion of tetragonal ZrO2 (52.4 vol%) and α-Al2O3 (47.6 vol%). Ceramics sintered by spark plasma sintering are completely dense with average grain sizes in the range around 250 nm. Outstanding mechanical properties (flexural strength σf = 1500 MPa, fracture toughness KIc = 6.8 MPa m1/2) together with a high resistance against low temperature degradation make these materials promising candidates for next generation bioceramics in total hip replacements and for dental implants.