In order to complement the structural characterisation by high resolution electron microscopy and perturbed angular correlation spectroscopy (PAC) of Al2O3 coated nano-composite ZrO2, XAFS spectra have been acquired and analysed. The electron micrographs showed fringes of a well ordered lattice and well defined crystal faces of the as-produced powder whereas the PAC spectra indicated a strongly distorted short range order. On the basis of the XAFS data, a structural model for the ZrO2 core of the nano-composite ZrO2/Al2O3 with a well ordered Zr lattice and a sevenfold, strongly distorted nearest neighbour oxygen shell is proposed. A smooth temperature dependence without an indication for a phase transformation up to a temperature of 700K has been revealed.