Y2O3　is　often　utilized　to　stabilize　zirconia　and　reduce　the　thermal　conductivity.　However,　the　phenomena　of　improved　stability　and　thermal　insulation　properties　are　not　clarified　yet.　In　this　paper,　different　compensated　and　non-compensated　8YSZ　systems　are　modeled　and　simulated　using　density　functional　theory　(DFT).　8YSZ　coatings　with　different　processing　parameters　are　prepared　by　atmospheric　plasma　spray　(APS)　technique　to　verify　the　theoretical　findings.　Moreover,　a　qualitative　and　quantitative　relationship　between　the　microstructure　and　thermal　conductivity　is　developed.　Based　on　the　phonon　scattering,　the　substitutional　point　defect　(Y3+　dopant)　plus　oxygen　vacancies　are　responsible　for　the　improved　stability　and　reduced　thermal　conductivity.　Electron　back　scattered　diffraction　analysis　verifies　the　molecular　dynamics　simulations　results.　Thermal　conductivity　values　estimated　from　the　calculations　are　consistent　with　the　experimental　observations.