Zirconia thin films have been deposited on magnesia (001) single-crystal substrates using a sol-gel precursor route. Thermal treatment at 600 degrees C induces the crystallization of polycrystalline thin films containing randomly oriented nanocrystals. Annealing at higher temperature gives rise to the appearance of a progressive heteroepitaxy and breakup of the film into islands. Polycrystalline tetragonal zirconia thin films, several tens nanometer thick, have been studied with an incident X-ray beam angle equal to several tenth degrees. The epitaxial growth has been characterized by XRD under controlled incidence angles and concurrently imaged by TEM on cross-sectional samples. The development of heteroepitaxied single-crystal islands results from abnormal growth of interfacial grains having a lower orientational free energy.