A process for preparing a zirconia-alumina base composite ultra-fine powder is described, including the steps of: mixing an aluminum salt or an alumina hydrate with an aqueous zirconium oxychloride solution, with or without metal salt acting as a stabilizer; mixing urea or a substance capable of generating ammonia by hydrolysis with the resulting mixture; and allowing the mixture to react at a temperature of 140.degree. to 300.degree. C. and a pressure of 4 to 150 kg/cm.sup.2 in a high-temperature and -pressure vessel. The reaction product is further dried, calcined and crushed to obtain an ultra-fine powder.