ZrO2-SiO2 composite powder has been prepared by a wet chemical route using zirconyl chloride and fumed silica as starting materials and subsequently sintered by the hot-pressing method to obtain a ZrO2-SiO2 ceramic. The mechanical properties of the silica matrix have been much increased by the addition of 20 vol% zirconia. The microstructural features of the composite are observed by transmission electron microscopy (TEM) and high-resolution electron microscopy (HREM). The stabilibity of tetragonal zirconia in the matrix is attributed to the particle-size effect, and to the constraint effect of the silica matrix and that of the interphasic reaction layer. The increase in mechanical properties is discussed in relation to the residual stress and the enhanced elastic modulus caused by the incorporated ZrO2 particles.