Ultrafine zirconia powders were prepared by a coprecipitation and spray-drying method. Agglomerates may be fragmented or present in green bodies after compaction. The effect of agglomerates on sintering and microstructural development was studied and it was found that the agglomerate content in compacts was a major factor affecting the microstructure development and the sintered densities. The interaction between agglomerates themselves, and between agglomerates and the primary particle matrix is discussed. It is argued that the hard agglomerates in the powder from the water-washed coprecipitates are formed by oxo-bridging between non-bridging hydroxyl groups present in the zirconium hydroxide structures due to the effect of hydrogen bonding in the aqueous system. The substitution of organic -OR groups for the non-bridging hydroxyl groups removes this hydrogen-bonding effect between the zirconium hydroxide units and thus eliminates the cause of agglomeration.