An alternate method for fabricating ceramics with fine- or nano- scale microstructures is presented. Powder consisting of 2–25 μm diameter spherical particles (average 16 μm) obtained by plasma melting of spray-dried powder and quenching into water, were hot pressed and hot forged. Three different compositions were studied: eutectic alumina-zirconia, the eutectic composition with 1%Y2O3, and the eutectic composition with borosilicate glass. As-quenched particles (Al2O3–(1%Y2O3)ZrO2) contained both amorphous material and 50–80 nm crystallites. Microstructural development of the Al2O3–(1%Y2O3) ZrO2 was followed from room temperature up to hot pressing/hot forging temperatures. When fully dense after forging at 1350°C, the microstructure contained ZrO2 phases <100 nm in diameter embedded in the Al2O3 matrix. Al2O3 grains had an irregular morphology and were on the scale of ~1 μm diameter. A higher order structure designated as cells, containing a few of these grains, were enclosed by boundaries decorated with ZrO2 particles.