Phase transitions occurring in the Al2O3-ZrO2 composite as a result of plasma spraying and subsequent coating annealing are described. X-ray diffraction and transmission electron microscopy methods are applied to study these effects. Separate layers of amorphous, nano- and fine-crystalline structure with the columnar crystals areas have been observed. Thermal treatment causes formation of more ordered phases. Effect of partial stabilization of cubic and tetragonal zirconia due to the presence of alumina has been remarked.