In this work, novel 3 mol% yttria tetragonal zirconia polycristalline (3YTZP) ceramic composites with boron nitride nanosheets (BNNS) are investigated for the first time. Highly densified composites with 1 and 4 vol% BNNS were obtained by spark plasma sintering (SPS) after BNNS synthesis using a solution exfoliation method and BNNS dispersion into the ceramic powder by ultrasonication. The BNNS presented homogeneous distribution throughout the ceramic matrix and preferential alignment in the plane perpendicular to the pressing axis during SPS. The BNNS incorporation had practically no effect on the Vickers hardness of the material nor on the Young’s modulus. Anisotropy in crack development was found in the composite with 4% vol BNNS, together with a mechanism of extensive microcracking. Several energy-absorbing mechanisms during crack propagation, such as crack deflection, crack bridging, crack branching, BNNS pull-out and BNNS debonding, were identified in the composites by a close observation of the indentation-induced fracture paths.