Mechanochemical processing of zirconium and yttrium chloride precursors with lithium hydroxide has been used to synthesise ultrafine powders of yttria-stabilised zirconia. The precursors reacted during milling to form a composite consisting of nanocrystalline oxide grains embedded within a matrix of lithium chloride. The ultrafine powder was recovered subsequently by removing the lithium chloride through washing with deionised water and methanol. The powders were characterised using X-ray diffraction (XRD), transmission electron microscopy (TEM), and BET gas adsorption. The sintering behaviour of cold pressed pellets was examined by dilatometry.