Alumina-zirconia nano-composite coatings were fabricated using agglomerated feedstock from fine powders of about 100 nm by plasma spraying. The coating was very dense and showed the striped contrast in the splats. TEM observation revealed that the splats contained gamma-alumina and tetragonal-zirconia crystals, which sizes were under 10 nm. The striped contrast in the splats corresponded to the inhomogenous distributions of these crystals. As the investigation of the mechanical properties of this nano-composite coating, the adhesive strength was measured by shear testing and fracture toughness was evaluated by the tapered double cantilever beam approach.