Tungsten carbide coatings are often applied to improve surface properties such as wear, high temperature degradation, and corrosion resistance. Zirconia coatings have also been used extensively in various industries due to their excellent tribological and insulation properties combined with high stiffness. It is speculated that adding zirconia to tungsten carbide may result in a coating with combination of excellent thermal and mechanical properties of constituents. In the current study, a powder mixture of 50 wt. % WC-Ni and 50 wt. % ZrO2-Y2O3 deposited on a low carbon steel substrate using atmospheric plasma spray technique. The microstructural evolution of deposited sample was investigated. Splat boundaries, micro cracks, pore morphology conversion, and grain growth mechanism were elucidated comprehensively. Results indicated a good adhesion between two different major components. No porosity formed due to mismatch between zirconia and tungsten carbide. This study pays special attention to the dependency of the microstructural characteristics to the phase distribution within the coating.