The displacement reaction (in situ reaction) is an effective process to solve the interfacial problem between Al matrix and ceramic particles in Al alloy matrix composites. In this study, an Al alloy matrix composite powder containing nanometer was produced by using high energy ball milling, and a bulk Al alloy matrix composite reinforced with nanometer and submicrometer sized Al2O3 particles was obtained by sintering the ball milled composite powder at 950 °C for 2h. It was found that the Al2O3 particles were homogeneously distributed in the Al matrix after sintering. Some of the Si particles have lots of fine Al2O3 particles distributed homogeneously in the Al matrix. The hardness of the sintered specimen produced using as-milled composite powder is higher than that of the sintered specimen produced using as-mixed powder.