Al2O3/TiAl in situ composites were successfully prepared by vacuum hot-pressing method with elemental powder mixtures of Ti, Al, TiO2 and Fe2O3. The effect of Fe2O3 addition on the microstructures and mechanical properties of Al2O3/TiAl composites has been investigated. The results show that the Rockwell hardness, flexural strength and fracture toughness of the composites increase with increasing Fe2O3 content. When the Fe2O3 content is 0.84 wt %, the flexural strength and the fracture toughness reach the maximum value of 624 MPa and 6.63 MPa·m1/2, respectively. The improvement of mechanical properties is firstly associated with a more homogeneous and finer microstructure developed by addition of Fe2O3; secondly, it is related to the increase of the ratio of α2-Ti3Al/γ- TiAl matrix phases.