A combined sol-gel/thermal decomposition route has been used to produce powders of MgO-50 vol% ZrO2 nanocomposites and the influence of synthesis variables on the phase homogeneity in ceramic materials produced from these powders has been investigated. The starting precursors were solutions of magnesium nitrate and zirconium acetate, which were mixed, dried to form a gel, and then calcined to give ceramic powders. The effects of urea additions to the precursor mixture and changes in the calcination temperature were investigated using a combination of thermal analysis, X-ray diffraction, and scanning electron microscopy techniques. Although all of the ceramic materials produced from the powders consist of fine grains of the MgO and ZrO2 phases, in most cases these are clustered into coarse-phase domains that are distributed rather inhomogeneously. For ceramics synthesized from powders calcined at lower temperatures, and those produced from precursor mixtures containing 2 wt% or more of urea, the phase domains are finer and are distributed much more homogeneously. These observations are explained on the basis of the way in which the phase separation occurs during thermal decomposition of the precursors and crystallization of the oxides.