Two similar materials based on alumina-zirconia eutectic mixture have been successfully plasma sprayed by water stabilized plasma torch (WSP^®). Feedstock powder of the first material comprising alumina, zirconia, and 15wt.% of silica was obtained by crushing cast and furnace-cooled tiles. The second feedstock powder was standard fused and crushed mixture of pure alumina and zirconia. Both thick coatings and free standing parts with very low open porosity were easily achieved by WSP^®. The as-sprayed materials are mostly amorphous as determined by XRD. Thermal properties were measured by thermo-mechanical analysis (TMA) and differential thermal analysis (DTA). Upon annealing, the as-sprayed materials crystallize around 950ºC. Short annealing times at the crystallization temperature bring about very fine microstructure with average grain size as small as twelve nanometers. The fine microstructure was confirmed by transmission electron microscopy. Role of the silica compound on phase composition and microstructure of the as-sprayed and annealed materials is discussed. The as-sprayed materials exhibit high hardness and high abrasion resistance. Both properties significantly improve upon annealing thus making the bulk nanocrystalline material suitable for many applications.