A method of producing a segmented abradable ceramic coating system having superior abradability and erosion resistance is disclosed. The system includes a duct segment having a metallic substrate, a MCrAlY bond coat on the substrate and a segmented abradable ceramic coating on the bond coat. The segmented abradable ceramic coating includes a base coat foundation layer, a graded interlayer and an abradable top layer for an overall thickness of preferably about 50 mils (1.270 mm). The coating is characterized by a plurality of vertical microcracks. By precisely controlling the deposition parameters, composition of the layers and layer particle morphology, segmentation is achieved, as well as superior abradability and erosion resistance.