Precursor powders of mullite-zirconia (0–40 wt% ZrO2) were prepared by a hydroxide coprecipitation method and their behaviour during calcination between room temperature and 1500 °C was studied using thermal analysis, X-ray diffraction and electron microscopy. The only crystalline phases present in the precalcined powders were bayerite and gibbsite, and these were stable up to 250 °C. Powders containing ZrO2 were initially amorphous, but on calcination between 250 and 850 °C produced different crystalline phases at temperatures which depended on the amount of zirconia present. Thus in the case of mullite-40 wt% ZrO2, zirconia crystallized at about 850 °C and was stable up to 1200 °C, when it reacted with free silica to form zircon (ZrSiO4). Mullite formed above 1250 °C at the expense of zircon and remained stable at higher temperatures. The oxide powders were very homogeneous, and on sintering produced ceramics with a fine-grained uniform microstructure. The powders were very reactive and could be sintered conventionally to near-theoretical density at 1600–1700 °C without sintering aids. The fracture strength of mullite was about 275 MPa, and this could be improved to 350 MPa by hot isostatic pressing the presintered bodies. Addition of zirconia enhanced the sintering kinetics as well as the fracture strength of mullite.