Mechanical property enhancing mechanisms of $Al_2O_3-ZrO_2$ two phase ceramic composites were studied for several compositions of different $ZrO_2$/$Al_2O_3$ ratio. Microstructural analysis of $Al_2O_3-ZrO_3$(pure) composites indicated that pre-existing microcrack due to larger $ZrO_2$ particle at grain boundary extended along alumina grain boundaries within process zone. Microcracks also nucleated when very small $ZrO_2$ particles at the grain boundaries transformed to monoclinic phase at near of main crack tip. These types of microcracks could contribute to the toughening achieved by creating additional crack surface area during crack propagation. Microstructural analyses also showed that the average grain size and abnormal grain size of $Al_2O_3$ were decreased with increasing $ZrO_2$ vol% in $Al_2O_3$ matrix. As a result it could be concluded as follows In TEX>$Al_2O_3-ZrO_3$</TEX>(pure) system 1. Microcrack nucleation (stress-induced microcracking) and extension was effective mechanism for absorpiton of fracture energy 2, More narrow distribution and smaller grain size of $Al_2O_3$ due to $ZrO_2$particles mainly contributed to main-tatin the strength and hardness.