Fully dense Al₂O₃-ZrO₂ nanostructured composites were fabricated by a pulsed magnetic compaction and conventional sintering of the nano-sized powders. Two different approaches have been applied for production of the composite powders. Powders of the first group were prepared by mixing in the iso-propanol of a pure Al₂O₃ powder produced by electrical explosion of wire, and a Y₂O₃-stabilized ZrO₂ produced by pulsed laser vaporization of target. Powders of the second group were prepared by pulsed laser evaporation of targets comprising mixtures of coarse Al₂O₃ and 1.6YSZ particles. This treatment caused formation of nano-sized particles in largely metastable states: amorphous Al₂O₃ and Al₂O₃-Y₂O₃-ZrO₂ solid solutions. The sintered composite from the first group containing nearly equal volume fractions of Al₂O₃ and 2.8YSZ phases 70 and 140 nm in size respectively proved to be the best. It was characterized by the maximum density and bending strength.