Preparation technique of the particulate composite materials in the alumina/YAG system were studied. Within alumina particle suspension yttria precursor was precipitated with ammonium carbonate. Drying and calcinationa at 600oC resulted in the mixture of alumina and yttria particles. The latter being much finer than alumina particles. This mixture was additionally homogenized by short attrition milling in an aqueous suspension of pH which level was selected on the basis of zeta () potential measurements. It was found that acidic conditions (realized with HNO3) result in hard agglomerates. Such powders showed poor sintering ability and not homogenous second phase particles distribution. Much better properties were observed in case of powders homogenized under basic condition. They give dense materials composed of YAG inclusions of sizes several times smaller than shown by alumina grains and evenly distributed within the matrix. YAG particles result from the reaction of Y2O3 with Al2O3 during heat treatment. Some compositions show fracture toughness essentially higher than observed in pure alumina polycrystals.