In this work, we demonstrate and describe an effective method of protecting zirconium fuel cladding against oxygen and hydrogen uptake at both accident and working temperatures in water-cooled nuclear reactor environments. Zr alloy samples were coated with nanocrystalline diamond (NCD) layers of different thicknesses, grown in a microwave plasma chemical vapor deposition apparatus. In addition to showing that such an NCD layer prevents the Zr alloy from directly interacting with water, we show that carbon released from the NCD film enters the underlying Zr material and changes its properties, such that uptake of oxygen and hydrogen is significantly decreased. After 100–170 days of exposure to hot water at 360 °C, the oxidation of the NCD-coated Zr plates was typically decreased by 40%. Protective NCD layers may prolong the lifetime of nuclear cladding and consequently enhance nuclear fuel burnup. NCD may also serve as a passive element for nuclear safety. NCD-coated ZIRLO claddings have been selected as a candidate for Accident Tolerant Fuel in commercially operated reactors in 2020.