Compositionally graded composite of alumina-20%zirconia (volume fraction) was fabricated by using centrifugal casting incorporated with relatively thin slip. An EPMA analysis exhibited a nearly linear variation of the alumina/zirconia ratio along the centrifugal direction; zirconia tended to accumulate in the bottom section, while alumina in the top section. Such a graded structure exhibited a considerably higher flexural strength when the alumina rich surface was subjected to a tensile stress than compositionally uniform composite of the same average composition. Fracture toughness measurement across the specimen thickness by indentation method revealed that the crack lengths along the vertical and horizontal directions were different. The anisotropy of the fracture toughness was accounted for by the variation of the residual stress across the specimen thickness. Zirconia tended to accumulate in the alumina / zirconia ratio along the centrifugal direction; bottom section, while alumina in the top section. Such a graded structure exhibited a due higher flexural strength when the alumina rich surface was subjected to a tensile stress than compositionally uniform composite of the same average composition. Fracture toughness measurement across the specimen thickness by indentation method revealed that the crack lengths along the vertical and horizontal directions were different. The anisotropy of the fracture toughness was accounted for by the variation of the residual stress across the specimen thickness.