Functionally graded coatings with continuous changes of microstructures and properties across the material are expected to have low residual and thermal stresses and improved bonding strength between base materials and the ceramic coatings. This paper presents a technique to produce high-performance graded coatings in which the mix of components in the coating changes continuously from the base materials out. A hybrid HVOF-Arc spray gun has been employed to create such coatings. The metallic matrix material is utilized in the form of wires that are fused by arcing process. A high velocity combustion jet carrying the ceramic particles atomizes the molten material and mixes the ceramic particles with the matrix material. The feed rate of the matrix material and the reinforcing material are controlled together giving a systematic variation of the reinforcement phase. Two material systems; WC-16%Cr3C2-Ni-5%Al and B4C-Al(5%Si) have been investigated. The in-flight particle characteristics of the process have been characterized. The resulting microstructures and process capabilities are discussed.