This work focuses on the synthesis of tetragonal zirconia (ZrO2) nanocrystallites with diameters of 5 nm by a simple hydrothermal process in the presence of hydrazine hydrate. Structural characterization of the ZrO2 products using X-ray diffraction and Raman spectroscopy revealed that the predominant crystal phase was the tetragonal phase. High-resolution transmission electron microscopy images further showed that that the diameter of the majority of the tetragonal ZrO2 nanocrystallites was < 5 nm. Furthermore, we discussed the mechanism of the hydrothermal process and the critical roles of hydrazine hydrate in the hydrothermal formation of the small-sized ZrO2 nanocrystallites.