The microstructures in 3 mol% Y2O3-stabilized tetragonal zirconia polycrystal (Y-TZP) sintered at 1100°-1650°C were investigated to clarify cubic-formation and grain-growth mechanisms. The cubic phase in Y-TZP appeared at 1300°C and its mass fraction increased with increasing sintering temperature. High-resolution transmission electron microscopy (HRTEM) and nanoprobe X-ray energy dispersive spectroscopy (EDS) measurements revealed that no amorphous layer existed along the grain-boundary faces in Y-TZP, and Y3+ ions segregated not only along the tetragonal-tetragonal phase boundaries but also along tetragonal-cubic phase boundaries. Scanning transmission electron microscopy (STEM) and nanoprobe EDS measurements revealed that the Y3+ ion distribution was nearly homogeneous up to 1300°C, but cubic phase regions with high Y3+ ion concentration clearly formed inside grains at 1500°C. These results indicate that cubic phase regions are formed from the grain boundaries and/or the multiple junctions in which Y3+ ions segregated. We termed such a new diffusive transformation phenomenon “grain boundary segregation-induced phase transformation (GBSIPT)”. The grain-growth mechanism is controlled by the solute-drag effect of Y3+ ions segregating along the grain boundary.