Microstructural development during aging of supersaturated solid solutions of cubic ZrO, stabilized with MgO was studied, principally using transmission electron microscopy. The starting materials were commercial Mg‐PSZ, solution‐annealed at 1850°C for 4 h. Optimum mechanical properties are obtained at aging temperatures of 1400° to 1500°C, where homogeneous intragranular precipitates of tetragonal ZrO2 form. The best materials are those in which the precipitation reaction is about two‐thirds complete and the precipitates have not lost coherency. Under these conditions, the particles do not transform to monoclinic symmetry when cooled to room temperature, except near propagating cracks, where the stress‐induced transformation contributes to the high fracture toughness and strengths observed. Aging at lower temperatures causes eutectoid decomposition, as expected from phase‐equilibria considerations. Nucleation of the eutectoid reaction product invariably occurs at grain boundaries. Copyright © 1979, Wiley Blackwell. All rights reserved