The effects of yttria stabilization (0–6 mol%) on the fracture toughness of molybdenum disilicide composites reinforced with 20-vol%-yttria-stabilized zirconia particles are elucidated. Fracture toughness tests were conducted under three-point bend loading using single-edge-notched specimens. The stress-assisted martensitic phase transformation of zirconia associated with the fracture process was then studied using optical interference microscopy and laser Raman spectroscopy. Stress-induced martensitic transformation from tetragonal to monoclinic phase was observed only in the plastic wake of the material stabilized with 2 mol % yttria. The degree of toughening in this composite was also predicted using micromechanical models that assess the combined effects of transformation toughening and crack deflection. However, the fracture toughness of the 2-mol%-yttria-stabilized composite was in the same range as those of the other composites that did not exhibit evidence of transformation toughening. The toughening in the other composites is explained by considering the effects of crack deflection, residual stresses, and microcracking induced by residual stresses that occur as a result of the thermal expansion mismatch between the matrix and the reinforcements.