Ultrafine non-doped and yttria-doped zirconia (ZY) powders have been produced by a single-step plasma synthesis method. The amount of yttria doping was varied between 0 and about 10 mol%. The phase composition, structural parameters and morphology of the as-prepared powders have been examined by X-ray diffraction, neutron diffraction and electron microscopy. The average particle size of the produced powders was found to be around 30 nm, changing little with composition. The particles were mostly spherical but a large number of faceted single crystals were also present, as revealed by high resolution transmission electron microscopy. The ZY ultrafine powders were mixtures of a cubic and a non-transformable tetragonal zirconia phases. The amount of the tetragonal phase decreased with the overall yttria content but with a composition that remained almost the same. Neutron diffraction revealed diffuse scattering located at the positions of tetragonal maxima forbidden for cubic structure. The origin of diffuse scattering is associated with oxygen vacancies, either due to relaxation around Y3+ ions or due to ordering of vacancies. X-ray diffraction showed no diffuse scattering.