The mechanisms underlying stabilization of the metastable tetragonal (t)-phase in sol-gel derived, nanocrystalline ZrO2 were studied by high-resolution analytical electron microscopy, utilizing parallel electron-energy loss (PEEL) and energy-dispersive X-ray spectroscopies. The powders were synthesized by hydrolysis of Zr (IV) n-propoxide at ratios of molar concentration of water to Zr n-propoxide, R=5 and 60, respectively, followed by calcination at 400°C. Dense particles of the as-precipitated ZrO2 (R=5) revealed 4–11 nm-sized nanocrystals embedded in the amorphous matrix that may serve as nuclei for the t-phase during calcination. The calcined particles consist of 10–100 nm–sized t-crystals. For as-precipitated ZrO2 (R=60), week aggregates (50–100 nm) of largely amorphous 4–20 nm-sized particles after calcination yield a mixture of t-and monoclinic (m-) nanocrystals. PEELS fingerprints of the band structure with the intensity threshold matching the expected position of a direct bandgap at 4–5 eV allow to differentiate between the amorphous and nanocrystalline ZrO2. Stabilization of t-phase (R=5) with sizes up to 16 times larger than reported earlier is likely due to strain-induced confinement from surrounding growing grains, which suppress the volume expansion associated with the martensitic t-m transformation. For R=60, loose nanoparticle agglomerates cannot suppress the transformation. In this case, the t-phase may be partially stabilized due to a crystal size effect and /or to the presence of m-phase.