Plasma sprayed thermal barrier coatings often face the problems of spallation and cracking in service owing to their poor bond strength and high residual stresses. Functionally graded thermal barrier coatings with a gradual compositional variation from heat resistant ceramics to fracture resistant metals are proposed to mitigate these problems. In this paper, functionally graded Y2O3 stabilized ZrO2 (YSZ) / NiCoCrAlY composite coatings were prepared using pre-alloyed and spheroidized composite powders. The mechanical and thermal properties of graded YSZ/NiCoCrAlY composite coatings, such as elastic modulus, bond strength, coefficient of thermal expansion, thermal cycling and oxidation resistance were investigated. Results showed that the bond strength and thermal cycling resistance of FGM coatings were much better than that of the duplex coatings. The coefficient of thermal expansion and elastic modulus changed gradually through the 5-layer functionally graded coating.