ZrO2 nanocomposites were prepared and studied by microstructure observation and mechanical property detection. First, yttria stabilized zirconia (3Y-TZP) nanopowders were synthesized by sol-gel method. TEM photograph showed that the addition of yttria restrained the growth of the grain, but caused the agglomeration of the nanopowder. XRD analysis showed that the amount of yttria influenced the phase character of the materials, and the monoclinic zirconia changed gradually into tetragonal and cubic phase with increasing yttria content. Second, the micro-size 3Y-TZP materials was mixed with the former prepared nano-size particles and pressed by cold isostatic pressing, and then sintered at 1300 °C to prepare ZrO2 ceramic nanocomposites. The results of microstructure analysis showed that the amount of nano-size powder affected the fracture mode of nanocomposites, thus changed the fracture toughness. The mechanical testing results indicated that both the flexural strength and the hardness decreased with increasing nano-size powder, whereas fracture toughness increased and decreased subsequently. ZrO2 ceramic nanocomposites with 20% nano-size powder would be a promising kind of dental restoration material due to its low hardness, high fracture toughness and moderate flexural strength.