Abstract: A thermal barrier coating (TBC) system and method for forming the TBC system on a component designed for use in a hostile thermal environment, such as superalloy turbine, combustor and augmentor components of a gas turbine engine. The TBC system exhibits improved spallation resistance as a result of having a bond coat formed to contain a dispersion of oxide particles in its outer surface region. A method for preferentially entrapping oxide particles in a bond coat entails depositing the oxide particles on the surface of the component prior to forming the bond coat, which may be a diffusion aluminide or an aluminized overlay coating. Deposition of the bond coat causes the oxide particles to become dispersed in the outer surface region of the bond coat. A particular feature of this invention is the ability to preferentially entrap oxides of elements that are not present in the bond coat or a substrate region of the component on which the bond coat is formed.