Al2O3-ZrO2 coatings were deposited using a vacuum arc deposition system equipped with two co-planar cathodes. The plasma was injected into a cylindrical magnetic duct through annular anode apertures toward a substrate or an electrostatic ion current probe positioned on the duct axis, in vacuum and in a low-pressure oxygen or argon + oxygen background. Ion current and arc voltage measurements and visual observation of the cathode spots were used to find stable arcing conditions, using a straight plasma duct configuration. The cathode spot operation and transport of the plasma beam in the duct were studied as a function of arc current (I (arc) = 25-200 A) and oxygen or oxygen + argon pressures (P = 0.1-1.5 Pa). Coatings were fabricated by exposing Si or WC-Co substrates simultaneously to Al and Zr plasmas using a 1/8 torus filter configuration in O-2 + Ar pressures. The coating composition, structure, microhardness, adhesion, and wear behavior were studied as functions of the deposition parameters. Favorable conditions for stable arcing were obtained with I (arc) = 75 and 100 A for Al and Zr plasmas, respectively. The ion current decreased, and the arc voltage increased with the oxygen pressure. Behavior of the ion current and arc voltage suggested that cathode poisoning started at P = 0.5 Pa. Deposition rates were 0.3-0.6 mu m/min, depending on the substrate position. All coatings were "Zr rich", i.e., the Zr:Al ratio was in the range of 1.2-5.6 depending on the substrate position and deposition conditions. The coatings with higher ZrO2 concentration were harder and had better resistance to wear. The coating's hardness reached a maximum of similar to 22-24 GPa at a deposition temperature of 500 A degrees C or a negative bias voltage of 75-100 V.