Surface coating has been used to prepare nano-particle BN-AlN composite powder. Nano-BN was synthesized via in-situ reaction, coating on the surface of AlN particles. The effects of coated nano-BN on the microstructure and properties of BN-AlN composites have been investigated. Results indicate that the microstructure and properties of BN-AlN composites are very different from the origin composite powders. Nano-BN particles cause the homogeneous microstructure and reinforce the grain boundary of BN-AlN composites. They exhibit similar regularity of reinforce effect of ceramic nano-particle and enhances remarkably the composites’ mechanical strength. But nano-BN will introduce more grain interfaces, more oxygen-related defects in grain lattice to increase phonon scattering and reduce the thermal conductivity of BN-AlN composites.