The incorporation of monoclinic zirconia nanoparticles and their subsequent transformation is examined for coatings formed on magnesium by plasma electrolytic oxidation under AC conditions in silicate electrolyte. The coatings are shown to comprise two main layers, with nanoparticles entering the coating at the coating surface and through short-circuit paths to the region of the interface between the inner and outer coating layers. Under local heating of microdischarges, the zirconia reacts with magnesium species to form Mg2Zr5O12 in the outer coating layer. Relatively little zirconium is present in the inner coating layer. In contrast, silicon species are present in both coating layers, with reduced amounts in the inner layer. (C) 2008 Elsevier B. V. All rights reserved.