This paper presents the results of a combined experimental and computational study of contact damage in a 3 mole% yttria partially stabilized zirconia (3-YSZ) that is relevant to hip implants and dental restorations. Contact-induced loading in real applications is idealized using Hertzian contact model to explain plasticity phenomena and failure mechanisms observed under monotonic and cyclic loading. Under monotonic loading, the elastic moduli increase with increasing loading levels. Under cyclic loading, the ceramic specimens fail with progressive cone cracking. X-ray analyses reveal that stress-induced phase transformation (from tetragonal to monoclinic phases) occurs under cyclic contact loading above the critical load levels (approximately 8.5 kN). Furthermore, when the cyclic loading level (5.0 kN) is less than a critical load levels (7.5 kN) that is required to induce surface cone cracks, significant plastic damage is observed in the subsurface zone underneath the contact area. These suggest that the cyclic contact loading induce both plastic damage and tetragonalto-monoclinic phase transformation in the 3-YSZ, leading to significant degradation in long-term strength. The implications of the results are discussed for the design of zirconia femoral heads in total hip replacements and zirconia crowns in dental restoration.