Piezoceramics have long faced the challenge of achieving both a high Curie temperature (TC) and outstanding electrical properties due to thermal depolarization. To address this, we introduced a novel two-step synergistic strategy in synthesizing lead zirconate titanate (PZT)-based x[(1–y)BiYO3-yFe2O3)]-(1–x)Pb(Zr0.53Ti0.47)O3 [abbreviated as xBYF(y)-PZT] ceramics, where co-doping of Fe2O3 and BiYO3 significantly influences dielectric and piezoelectric properties. Our breakthrough composition, 0.01BYF(0.6)-PZT, showcases a unique coexistence of rhombohedral and tetragonal phases. It boasts impressive figures, including a piezoelectric coefficient d33 of 467 pC N−1, a TC of 381 °C, an electromechanical coupling coefficient (kp) of 68%, and a coercive field (Ec) of 12 kV cm−1, displaying both “softening” and “hardening” characteristics. In-depth analysis with in-situ X-ray diffraction and transmission electron microscopy unveils the critical role of multiphase coexistence and local heterostructures in enhancing piezoelectric responses through synergistic effects. Notably, this innovative composition with x = 0.01 showcases exceptional thermal stability across a broad operating temperature range (30–350 °C) and delivers an in-situ d33 value of 790 pC N−1. These compelling findings underscore the potential of BYF-modified PZT ceramics as promising candidates for high-temperature piezoelectric applications.