A compact air-preheating type heat exchanger was developed and tested for the ultra-high temperature heat recovery applications. For the direct use of exhaust gases up to $1200^{circ}C$, the heat exchanger adopted a ceramic core with high strength and low thermal expansion coefficient less than $1{ imes}10^{-6}^{circ}C^{-1}$. The ceramic core was fabricated by special extrusion and bonding techniques. To minimize thermal stresses in the core, spring-loaded sealing mechanism was designed and successfully installed. 1-pass air flow scheme was adopted for the compactness and cost-savings. The pressure test for the ceramic core showed no failure under 35 kPa and less than 3% leak under 7 kPa. Flue gas simulation system was developed to investigate the performance of the heat exchanger. The test results showed normal operations of the heat exchanger up to $1200^{circ}C$ of exhaust gases and relatively high heat recovery efficiencies of 31～39% depending upon exhaust gas temperatures..