High energy mechanical milling of a mixture of alumina and nanostructured Fe₄₈Co₅₂ powders was used in producing an Al₂O₃-20vol%Fe₄₈Co₅₂ composite powder. The milling time ranged from 8 to 48 hours. The microstructural changes were characterized by X-ray diffraction (XRD) and scanning electron microscopy (SEM). XRD analysis of the powder showed significant reduction in Al₂O₃ grain size after 24h milling to 27nm and approaching the alloy grain size with further milling. However, the alloy particles demonstrated almost unchanged grain size throughout the process. As milling progressed, changes of alloy particles shapes and their location in alumina phases became apparent. After 24h, a small fraction of Al₂O₃ particles became embedded into the alloy particles, forming a complex composite structure. Small change in the microhardness of the particles was observed. It was also observed that the Fe₄₈Co₅₂ particles and Al₂O₃ matrix reacted heavily when the powder was heated to 10500°C.