NiAl-30 vol.% Al2O3 nanocomposite has been synthesized from the NiO-Al-Ni powder mixture by carrying out reactive milling in toluene medium and subsequent heating. The NiO reduction and the ordered NiAl phase formation occur simultaneously during milling. The unreacted NiO present in as milled powder is reduced by Al/NiAl at 420 °C on heating. Subsequent heating leads to the formation of a small amount of Ni3Al phase before it transforms completely to NiAl phase above 900 °C. Amorphous alumina is formed as the product of NiO reduction and it transforms to stable α-Al2O3 at 1000 °C via the formation of metastable transition γ-Al2O3. After heating to 1120 °C, the 20 h milled powder consists of nanocrystalline NiAl phase and α-Al2O3 with a crystallite size of 115 ± 40 nm size and 11 ± 3 nm, respectively. © 2009 Elsevier Ltd. All rights reserved.