A low cost chemical co-precipitation method was employed to fabricate nanoscale Al2O3-GdAlO3-ZrO2 powder with eutectic composition. A careful control of reaction conditions was required during the preparation. The synthesized nanopowders exhibited a particle size of 20–200 nm, and were highly dispersive and uniform. The results showed that calcination temperature had an important influence on the phase constituents of the nanopowders. With increasing the calcination temperature, a phase transformation from θ-Al2O3 to α-Al2O3 and a thermal decomposition from Gd3Al5O12 (GdAG) to GdAlO3 and α-Al2O3 occurred in sequence. A calcination temperature of 1300 °C was needed for the crystallization ofα-Al2O3. These nanosized powders were consolidated via hot pressing to produce a fully densified ceramic composite with eutectic composition. The Al2O3-GdAlO3-ZrO2 ceramic hot-pressed at 1500 °C exhibited a relative density of 99.4%, a flexural strength of 485 MPa and a fracture toughness of 6.5 MPa m1/2. The ceramic had a thermal conductivity of 1.9 W m K?1 at 1200 °C and a thermal expansion coefficient of 9.49 × 10?6 K?1 at 1100 °C.