High energy mechanical milling (HEMM) of a mixture of Cu powder and Al₂O₃ nanopowder has been used to produce Cu-(2.5-10)vol.%Al₂O₃ nanocomposite powders with a ultrafine grained or nanocrystalline Cu matrix. The microstructure and microhardness of the as-milled powder particles and the thermal stability and microhardness change of the nanocomposite powder particles caused by annealing at temperatures up to 500oC have been studied. It is shown that HEMM can be effectively used to disperse (2.5-10)vol.% Al₂O₃ nanoparticles into a ultrafine grained or nanocrystalline Cu matrix. Using larger diameter balls or increasing the volume fraction of Al₂O₃ nanoparticles to 7.5% or higher allows synthesis of Cu-Al₂O₃ nanocomposite powders with nanocrystalline Cu matrix. Refining the microstructure of the Cu matrix and increasing the volume fraction of Al₂O₃ nanoparticles in the nanocomposite both increase the thermal stability of the nanocomposite structure.