The structure formation of yttria stabilized zirconia - nickel oxide composites sintered in air and argon atmosphere were studied. It was shown that the crack propagation in 3Y-TZP ceramics greatly inhibited by creation of composite structure by addition of NiO particles and sintering at 1500 o C in argon atmosphere. Prevention of formation of the monoclinic phase of zirconia was conditioned by sintering composite under argon. Increasing of K1C value was found as in sample shell as in sample core of composite, in comparison with matrix 3Y-TZP ceramics. The increasing of K1C value of obtained intergranular type of composite structure cannot be explained by crack deflection and crack bridging processes by Ni and NiO particles, respectively. The possible explanation of K1C value increasing is the intensification of phase transformation toughening of zirconia by formation of metastable tetragonal phase depleted by Y 3+ ions. The reversibly dissociation of NiO on Ni and oxygen in neutral atmosphere provided the formation of cubic phase and Y 3+ depleted tetragonal phase. Internal oxidation of Ni during cooling leads to formation metastable tetragonal phase in depleted Y 3+ zirconia grains. The formation of NiO particles during cooling lead to emergence of large compressive stresses, which also increased the metastability of tetragonal zirconia grains, depleted of Y 3+ ions.