The reduction in fiber push-out stress by transformation plasticity in xenotime rare-earth orthophosphate fiber–matrix interphases was demonstrated. Processing methods for transformable xenotime coatings were explored. For conversion to xenotime during processing, (GdxDy1−x)PO4 solid solutions had to be more Dy-rich than those for pellets. Single-crystal alumina fibers were coated with 10–20 μm of (Gd0.4Dy0.6)PO4 xenotime and incorporated into polycrystalline alumina matrices. Coated fiber push-out stresses were between 10 and 80 MPa, significantly lower than those for fibers with other rare-earth orthophosphates coatings. Phase transformations and deformation mechanisms were characterized by SEM and TEM in fiber coatings after push out. Bands of deformed coating several micrometers in width formed during fiber push out. Cataclastic flow with fracture, granulation, translation, rotation, and intense plastic deformation of coating grains was observed. Three phase transformations may occur in heavily deformed particles in the deformation band: xenotime → monazite, xenotime → anhydrite, and anhydrite → monazite. Anhydrite was abundant as a fine lamellar phase on (100) planes in xenotime. Selected area electron diffraction and high-resolution TEM confirmed formation of monazite in a variety of heavily deformed particles. Issues for use of rare-earth orthophosphate transformation plasticity to lower fiber pull-out stress in ceramic matrix composites are discussed.