A planetary ball milling (PBM) technique was employed to fabricate mechanically alloyed (MA processed) Al-Nb2O5 composite powder. Nano or sub-micron sized Nb2O5 particles were homogeneously embedded in the Al particles after milling for various periods. None of cracks, by-products and pores were observed in the areas between embedded Nb2O5 particulates and Al matrix powder after milling. The sequence of the in-situ reaction was confirmed by DSC, XRD measurements, optical microscopy and EPMA. The specific temperature of the in-situ reaction was between 650 and 700°C. Al-based metal matrix composites (MMC) reinforced with the sub-sieve sized θ-Al2O3 particulates and Al3Nb intermetallic compound were successfully fabricated by the in-situ reaction process. The substituted Nb by the in-situ reaction was fully reacted with Al to form the Al3Nb intermetallic compound during sintering. A number of sub-sieve sized θ-Al2O3 particulates and Al3Nb intermetallic compound formed by the in-situ reaction between Al and Nb2O5 were homogeneously distributed in the Al matrix during sintering. Nano sized θ-Al2O3 particulates are preferentially distributed near the Al3Nb intermetallic compound and no by-products are formed in the interfaces with the Al matrix.