The microstructure of newly developed yttrium-oxide-dispersed tungsten alloy was investigated by examining the effect of sintering temperature on the particle size of yttrium oxide and the crystal size of tungsten. Also, it was confirmed that the bending strength of yttrium-oxide-dispersed tungsten alloy was more strongly affected by the sintering temperature in comparison with a sintered tungsten sample. The residual stress, induced by the coefficient of thermal expansion mismatch, is analyzed for the tungsten matrix composite with a particle of yttrium oxide using the finite element method. Because of the high residual stress, particles of yttrium oxide become crack initiation sites under the fabrication process. Finally, it is also shown that the bending strength of yttrium-oxide-dispersed tungsten alloy can be estimated simply by the fracture mechanics approach, based on the assumption of a flaw introduction effect by the yttrium oxide dispersion.