Zirconia-mullite composites were synthesized by a two stage process consisting of the wet interaction of zircon flour with formed aluminum hydroxide gel followed filtration and dry mixing of the filtered mass with micro-fine aluminum powder and ceria with varying ratios of aluminum hydroxide gel and aluminum powder. The sintered compacts were characterized by measuring different physico-mechanical properties, like, volume change, bulk density, apparent porosity, powder density, bending strength and fracture toughness along with XRD and SEM analysis. A considerable densification was observed in the sintered compacts and the composition affected significantly the sintering behaviour, microstructure and physico-mechanical properties of the fired compacts.