The effect of the diamagnetic ZrO2 addition on the microstructure and magnetic properties of LiTiZn ferrite ceramics, including the shape and parameters of the temperature dependence of the initial permeability, has been investigated. The defect structure of ferrite ceramic samples is assessed according to our earlier proposed method based on mathematical treatment of the experimental temperature dependencies of the initial permeability. The method is recommended for defects monitoring of soft ferrite ceramics and ferrite products. It was found that the defect structure of ferrite ceramics increased by 350% with an increase in the concentration of the ZrO2 additive in the range of (0–0.5) wt.%. In this case, for the same samples, the increase in the true physical broadening of reflections is only 20%, and the coercive force by 50%. Simultaneously, the maximum of the experimental temperature dependence of the initial permeability dropped by 45%. The microstructure of all samples is characterized with a similar average grain size according to the SEM data. However, samples with the 0.5wt.% of ZrO2 are characterized by the formation of conglomerates. A linear relationship was obtained between the defect structure and the width of the reflections, which indicates that this parameter is related to the elastic stress of ferrite ceramics.