Aluminum matrix composites (AMC) are attractive structural materials for automotive and aerospace applications. Lightweight, environmental resistance, high specific strength and stiffness, and good wear resistance are promising characteristics that encourage research and development activities in AMC in order to extend their applications. Powder metallurgy techniques like mechanical alloying (MA) are an alternative way to design metal matrix composites, as they are able to achieve a homogeneous distribution of well dispersed particles inside the metal matrix. In this work, aluminum has been reinforced with particles of MA956, which is an oxide dispersion strengthened (ODS) iron base alloy (Fe-Cr-Al) of high Young’s modulus and that incorporates a small volume fraction of nanometric yttria particles introduced by mechanical alloying. The aim of this work is to investigate the use of MA to produce AMC reinforced with 5 and 10 vol.% of MA956 alloy particles. Homogeneous composite powders were obtained after 20 h of milling. The evolution of morphology and particle size of composite powders was the typical observed in MA. The composite powders produced with 10 vol.% MA956 presented a more accentuated decrease in particle size during the milling, reaching 37 μm after 50 h. The thermal stability of the composite and the existence of interface reactions were investigated aiming further high temperature consolidation processing. Heat treatment at 420 °C resulted in partial reaction between matrix and reinforcement particles, while at 570 °C the extension of reaction was complete, with formation in both cases of Al-rich intermetallic phases.