The miniaturization of high-brightness white light-emitting diodes (WLEDs) is limited by the low thermal performance of phosphors. In this study, the microstructure, optical properties, and thermal performance of Al2O3–Y3Al5O12:Ce3+ (Al2O3–YAG:Ce) composite ceramics fabricated by hot pressing were investigated. By promoting the growth of Al2O3 grains while maintaining a high composite density, thermal performance of the composite ceramics was significantly increased. The thermal conductivity of a Al2O3–40-vol% YAG:Ce ceramic reached 21.8 W/m/K, which is close to the theoretical value. In addition, this composite ceramic exhibited the highest energy efficiency. After packaging with a high-power LED chip with dimensions of 1 mm × 1 mm, a high luminous flux of 639 lm was generated, while the reduction in output power at 250 °C was as low as 6%. This indicated excellent high-temperature stability and potential for applications in solid-state lighting.