Cu-10vol.%Al₂O₃ nanocomposite powders were produced using two high energy milling routes and heat treated at 150, 300, 400 and 500°C for 1 hour, respectively, to determine the thermal stability of the microstructure and the micohardness change of the materials as a function of the annealing temperature. Annealing of the as-milled powders at 150°C caused recovery and recrystallisation that leads to significant decrease in dislocation density and slight decrease of microhardness. Increasing the annealing temperature to 400°C causes slight coarsening of the Cu grains and corresponding slight decrease of microhardness. Further increasing the annealing temperature to 500°C causes significant coarsening of the Cu grains and cause significant decrease in microhardness. The effects of different factors on the thermal stability and micohardness change of the Cu- Al₂O₃ are discussed.