Zirconium (Zr) and 12 mass% chromium containing ferritic stainless steels with Zr oxide dispersoids have been developed. In this study, the relationship between the process conditions and the metallurgical and mechanical properties were investigated. 12Cr-1Zr steel was consolidated with a grain size of about 1 μm by extrusion process of powder without mechanical alloying (MA). On the other hand, 12Cr-1Zr steels with MA process were shown to have a grain size of only about 0.36 μm or less. It was suggested that Zr atoms strongly reacts with gaseous impurities such as oxygen and carbon that were entrapped during MA. Based on TEM observations, Zr oxide and carbide preferentially precipitated on the grain boundaries which pin the grain boundary migration during the extrusion process. The developed steels follow the Hall-Petch relation and the slope is nearly identical to that of pure iron. Charpy impact values, at room temperature, of over 3 MJ/m2 up to tensile strength of 1500 MPa were obtained which is three times higher than those of conventional ferritic stainless steels or PH-stainless steels.