The fracture toughness and strength behaviour of nickel aluminide toughened by partially stabilized as well as by non-stabilized zirconia dispersoids were investigated in the range of zirconia content up to 40 vol%. The temperature dependence of the mechanical properties of the composite with an optimal zirconia content was examined. A considerable increase both in fracture toughness and in bending strength was achieved compared to the base nickel aluminide. To reveal the nature of the toughening and strengthening effects, X-ray diffraction measurements were performed before and after fracture. Residual stresses imposed on zirconia particles were evaluated. Trends in mechanical behaviour have been discussed in terms of microstructure development.