Zirconia-nickel functionally graded materials were obtained by powder metallurgy technique. The microstructure, residual stress, fracture toughness and Vickers hardness were investigated. Mixed-mode fracture response of YSZ /Ni functionally graded materials was examined utilizing the three point bending test and finite element method (Cosmos/M 2.7). The results show that the stress intensity factors (KI, KII) for the FGM are less than those for non-graded composite (NGCs) under mixed mode loading conditions. There are some local perturbations in the crack propagation paths of the FGM and NGC specimens. Most of local perturbations exhibit in the layers with high Ni content such as the layers with 30%, 40% and 50% Ni, respectively. The local perturbations are believed to be caused by the local heterogeneity of the microstructure. The residual stress (maximum tensile stress) of the NGC (YSZ/50%Ni) was 122 MPa and was in agreement with the published paper.