Al2O3 ceramic reinforced with 4-wt% multiwalled carbon nanotube (CNT) is plasma sprayed for improving the fracture toughness of the nanocomposite coating. Two different methodologies of CNT addition have been adopted in the powder feedstock to assist CNT dispersion in the nano-Al2O3 matrix. First, spray-dried nano-Al2O3 agglomerates are blended with 4 wt% CNT as powder-feedstock, which is subsequently plasma sprayed resulting in the fracture toughness improvement of 19.9%. Secondly, spray dried composite nano-Al2O3 and 4 wt% CNT powder was used as feedstock for attaining improved dispersion of CNTs. Plasma sprayed coating of composite spray dried powder resulted in increase of 42.9% in the fracture toughness. Coating synthesized from the blended powder displayed impact alignment of CNTs along splat interface, and CNTs chain loop structure anchoring the fused Al2O3 melt whereas coating synthesized from composite spray dried powder evinced anchoring of CNTs in the solid state sintered region and CNT mesh formation. Enhanced fracture toughness is attributed to significance of CNT dispersion.