This work elucidates the basic mechanisms active in microstructure and the associated surface energy for a widely used bioinert ceramic, magnesia partially stabilized zirconia (MgO-PSZ) following CO2 laser treatment. CO2 laser irradiation results in rapid heating of the surface and consequently leads to the surface densification and crystal growth in the melted layer of the MgO-PSZ. There was an increase in the tetragonal phase after CO2 laser treatment and columnar crystal structure in the upper-most layer and irregular grain in the heat affected zone. Various power densities of laser treatment brought about different microstructures on the modified MgO-PSZ. Contact angle measurement of a set of test liquids was used to estimate the surface energy of the MgO-PSZ before and after CO2 laser treatment. It was found that the surface energy of MgO-PSZ had been enhanced after CO2 laser treatment and its increase was related to the phase change (represented by microstructure) and crystal size of MgO-PSZ.