In this work the toughening mechanism and the microstructure of SPS-sintered Al2O3-ZrO2 nano-composite ceramics whose powder was prepared by mixed coagulative method, was studied. The study showed that the grain shape of Al2O3 was changed due to the additive ZrO2 and its density was improved in the Al2O3- ZrO2 ceramics. Meanwhile its grain was refined. The microstructure was the typical nano-composite ceramics mixed with intracrystalline and intercrystalline structure. The irregular aggregation of ZrO2 mostly existed on the grain boundary, where many grains of Al2O3 intersected. Some thin and dispersal globular nano grains (70nm-200nm) of ZrO2 were distributed in the Al2O3 crystal grains. That enhanced the mechanical performance of the matrix because of the refined grain and the intracrystalline nanometer structure. The study also showed that the changes of the mechanical performance of Al2O3-ZrO2(n) ceramic resulted from toughening mechanism introduced by nanometer grains, toughening mechanism introduced by ZrO2 phase transition and the intracrystalline structure.