The hydrothermal degradation mechanism of tetragonal ZrO2 previously proposed by the author was elaborated. In this mechanism, the annihilation of oxygen vacancies is a crucial step, and the grain boundaries play an important role in propagating the degradation. The degradation process of a 3 mol% Y2O3 doped ZrO2 pellet annealed in water vapor was monitored via impedance spectroscopy, the bulk and the grain boundary resistivity, and the grain boundary thickness were all found to increase with increasing annealing time, proving the annihilation of oxygen vacancies in the bulk and especially at the grain boundaries. The fracture surfaces of the annealed pellet were studied by SEM, only intergranular cracks were observed, indicating the propagation of the degradation along the grain boundaries. The mechanism predicts that the electrode resistance should increase when the electrodes are exposed to water vapor. Silver electrodes on a 8 mol% Y2O3 doped ZrO2 pellet were annealed in the mixture of oxygen and water vapor, the electrode resistance was found to increase with increasing annealing time. The prediction was thus proven.