The dispersion-cum-distribution of second phase particles in a polycrystalline ceramic microstructure influences the mechanical and tribological properties, with the difficult-to-achieve inter-/intragranular reinforcement often leading to better properties, as compared to simply intergranular reinforcement. However, the latter microstructure-type is more regularly obtained when the processing involves physical mixing of crystalline (starting) powder particles of the components. Against this backdrop, an innovative sol-gel-based route, which is devoid of such physical mixing, but which leads to heterogeneous nucleation/growth of the crystalline matrix phase (here, α-Al2O3) around well-dispersed second-phase particles (of tetragonal zirconia; t-ZrO2) during calcination/sintering, allows achieving inter-/intragranular reinforcement of t-ZrO2 in Al2O3-ZrO2 composites. Such a microstructure-type results in considerably improved hardness (even with respect to monolithic Al2O3), despite the incorporation of softer ZrO2 phase, enhanced resistances to crack propagation and wear damage, as compared to the conventionally processed counterparts, having primarily intergranular t-ZrO2 reinforcement. From mechanistic point of view, the intragranular t-ZrO2 reinforcement leads to enhanced “t-ZrO2 transformability” and change in fracture mode from intergranular to transgranular. From a generic perspective, the beneficial aspects of the processing route can potentially be taken forward toward the development of other ceramic composites possessing inter-/intragranular microstructure-type.