The incorporation of particles of monoclinic zirconia into coatings formed on magnesium by plasma electrolytic oxidation has been examined in order to investigate the mechanism of coating formation. The coatings, developed under DC conditions in alkaline silicate and phosphate electrolytes, comprised two main layers and contained MgO, Mg2SiO4, and Mg-3(PO4)(2) phases. Zirconia particles were incorporated preferentially into the inner layer regions and at the coating surface. Zirconium was also redistributed in the outer layer coating material, sometimes resulting in a modified microstructure. Due to local heating at the microdischarge sites, particles underwent transformation from monoclinic to tetragonal zirconia, although monoclinic zirconia was also present in the final coating. Mg2Zr5O12 was also formed in the coating produced in phosphate electrolyte. The findings suggest that the outer coating material forms at the inner/outer coating interface region and the coating surface, with transport of particles to the former region through short-circuit paths in the outer layer.