Abstract <p>The structure and properties of functionally gradient ceramic synthesized from an exothermic 70ZrO₂–24Al–6С (wt %) mixture under hot pressing in contact with colloid graphite are described. It has been established that two layers with a gradient structure are formed on the surface of the specimen with a structure that includes two complexly alloyed carbide ZrC and oxide Al₂O₃ based phases with a volumetric ratio of 55 : 45 and a size of 2–15 µm % and disperse (1–3-µm) 10Zr₂Al and 5ZrO_2(М) (wt %) inclusions. The layer with a gradient microstructure formed at the interface with the basic microstructure (BMS) with a thickness of 1.0–1.2 mm contains both the complex ZrС–Al₂O₃ based phases and finer (0.5–2-µm) spherical inclusions with a volumetric ratio of 45 : 55 without disperse Zr₂Al and ZrO_2(М) inclusions. The microhardness HV15 of the specimen with gradient and basic microstructures is 19.6 and 16.6 GPa, and the fracture toughness is <i>K</i>_Ic = 5.5 and 6.2 MPa m^0.5, respectively. The outer dark layer, which has a thickness up to 0.5 mm and contains up to 50 wt % of carbon and disperse (1–2-µm) inclusions on the basis of carbide ZrC and oxide Al₂O₃, has microhardness up to 4 GPa. Cutting inserts with a gradient microstructure have an advantage over inserts with the basic microstructure in the dry finish turning of steel KhVG (58 HRC) that grows with an increase in the cutting speed from 120 to 220 m/min. The reason for the formation of the functionally gradient fine-grained two-layer structure with a change in chemical composition with improved cutting properties is a temperature gradient on the specimen surface, a high activity of alumocarbothermal chemical interaction in the initial mixture, and partial migration under pressure during the hot pressing of an Al–Zr₂Al melt from the basic structure into the contacting layer from the colloid graphite and their chemical interaction in the oxygen atmosphere.</p>