Functionally gradient NiCrAlY/$ZrO_2$-$Y_2$$O_3$ and NiCrAlY/$ZrO_2$- $CeO_2$-$Y_2$$O_3$ coatings were prepared by APS. The as-sprayed microstructure consisted of metal-rich and ceramic-rich regions, between which $Al_2$$O_3$-rich layers existed owing to the oxidation during APS. During oxidation between 900 and $1100^{circ}C$ in air, the pre-existing $Al_2$$O_3$-rich scales grew, due mainly to the preferential reaction of Al with inwardly transporting oxygen along the heterogeneous phase boundaries. As the amount of ceramics in the coating increased, the oxidation resistance increased.