The aim of the work was to optimize the processing parameters for fabricating laminated ceramic composites of Al₂O₃–Y–PSZ. Composites of different layer thicknesses, starting from 2 mm and going down up to 0·3 mm, were made by hot-pressing. The different types of cracks originating in the composite were studied in detail and the reason behind their formation analysed. The observed main reasons for crack formation were: (i) differential shrinkage in between the co-sintering layers due to their different sintering kinetics, (ii) thermal expansion mismatch, and (iii) a tensile component of the residual stress in the layer under residual compressive stress. After this defect analysis, suitable remedial measures were taken to avoid the crack formation. And finally a laminated composite with fifteen layers of 0.3 mm thickness was made successfully.