Partial reduction reactions in the Ni-Al-O system, starting with the spinel compound NiAl2O4, are used to form metal-ceramic microstructures in situ. Two different morphologies of nearly pure Ni particles, equiaxed and rod-like, form within a ceramic matrix depending on the choice of processing parameters. Electron microscopy studies were performed for microstructural characterization, phase identification and chemical analysis. The fracture toughness of the Ni-Al2O3 mixture was significantly improved with respect to that of the original spinel phase. It is shown that cracking at the original spinel grain boundaries, likely due to the large volume changes associated with the reduction reaction, can be avoided by the addition of small amounts of ZrO2. It is seen that ZrO2 also acts as a nucleation site for the precipitating metal and hence allows morphology control in microstructures obtained by partial reduction reactions.