Zircaloy is commonly applied as structural element in nuclear reactors owing to the gamma radiation transparency of Zr. One of the research interests in Zr-Nb alloys is related to its behavior in H2O-rich environments due to hydrogen embrittlement. In the present work the microstructural evolution (crystallite size and microhardness), crystallography and hydrogenation behavior (after milling) due to mechanical alloying (MA) are studied for the Zr-Nb5%at and pure Zr. The MA study of Zr and the Zr-Nb system showed that frequency of rotation in a planetary mill and alloy composition play a major role on the evolution of crystallite size and microhardness. Nb addition was found to induce a partial allotropic transformation of the Zr structure (α→ω) during MA. Indeed, for milling experiments with significant Fe contamination the formation of an fcc phase was observed. Further, MA for extended times (over 5 hours) was found to reduce the hydrogen absorption capacity of Zr and the Zr-Nb system studied.