Reaction sintering of $Al_2O_3-ZrO_2-Nb$ composite has been investigated using $Al_2O_3$, $ZrAl_2$ and $Nb_2O_5$ powders. The reaction between $Nb_2O_5$ and $ZrAl_2$ started below the melting temperature of $Nb_2O_5$. It seems therefore that $Nb_2O_5$ decomposed below it's melting temperature and the formed oxygen reacted with $ZrAl_2$ particles, forming $ZrO_2$ and $Al_2O_3$. Specimens with relative density of over 95% could be prepared by sintering powder mixtures doped with MgO and calcined at 800℃ before the sinterimg treatment. Hot pressed $Al_2O_3-ZrO_2-Nb$ showed higher toughness and lower hardness than hot pressed $Al_2O_3-ZrO_2$. When the volume of $ZrO_2$ in $Al_2O_3-ZrO_2$ specimen was equal to that of $ZrO_2-Nb$ in $Al_2O_3-ZrO_2-Nb$ specimen, however, the hardness showed about the same for the two specimens. In contrast, the toughness of hot pressed $Al_2O_3-5ZrO_2-5Nb$ was 4.76MPa$m^{1/2}$, and while the toughness of hot pressed $Al_2O_3-10ZrO_2$ was 4.16MPa$m^{1/2}$. The increase in toughness of $Al_2O_3-ZrO_2-Nb$ over $Al_2O_3-ZrO_2$ appeared to result from the absorption of crack propagation energy by the plastic deformation of Nb particles.