The microstructure of thermally sprayed ceramic coating is characterized by the existence of various pores and microcracks. The porous microstructure makes coating desirable for thermal insulation, but this unique microstructural feature also gives rise to nonlinear response under tension and compression loads. Detail investigations of curvature measurements of ceramic coated substrate indicate the coatings show nonlinear deformation. In this paper, the mechanism of such nonlinear behavior was studied with finite element analysis through modeling Yttria Stabilized Zirconia (YSZ) coating microstructure. Computational models were established which allow for random distribution of numerous pores and microcracks with various sizes, aspect ratio, location and orientation with respect to spray direction. The effects of such attributes of pores and microcracks on coating nonlinear behavior were studied by simulating the curvature change with temperature during thermal cycle. In order to model more realistic coating structure, the microstructure image obtained from Scanning Electron Microscopy (SEM) was also used to study nonlinear deformation. Several SEM microstructures from different processing conditions were modeled to investigate the effects of key processing parameters on coating properties. Such effects can provide the guidance for optimal design of specific or desired coatings by varying those controllable processing parameters.