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Local environment surrounding Zr atoms in the thin films of nanocrystalline zirconia (ZrO2) has been investigated by using the extended x-ray absorption fine structure (EXAFS) technique. These films prepared by the ion beam assisted deposition exhibit long-range structural order of cubic phase and high hardness at room temperature without chemical stabilizers. The local structure around Zr probed by EXAFS indicates a cubic Zr sublattice with O atoms located on the nearest tetragonal sites with respect to the Zr central atoms, as well as highly disordered locations. Similar Zr local structure was also found in a ZrO2 nanocrystal sample prepared by a sol-gel method. Variations in local structures due to thermal annealing were observed and analyzed. Most importantly, our x-ray results provide direct experimental evidence for the existence of oxygen vacancies arising from local disorder and distortion of the oxygen sublattice in nanocrystalline ZrO2. These oxygen vacancies are regarded as the essential stabilizing factor for the nanostructurally stabilized cubic zirconia.