Aluminum matrix composites are important applicable materials for automotive and aerospace industries. Lightweight, environmental resistance, high specific strength and stiffness, good wear resistance and high thermal and electrical conductivity are characteristics that promote research and development to extend their applications by further improvement in the properties. Ceramic particles are the most widely used materials for reinforcement of aluminum alloys. In this thesis, friction stir processing was used to develop in-situ surface Al-Ni-O nanocomposite on powder metallurgy parts. A new procedure was introduced for applying the reinforcement particles, in which 15wt% of pure Ni powder were added to Al powder and mixed for 30 minutes. The prepared mixture, cold pressed at 250 MPa and sintered in 520 for 20 minutes. The FSP was performed on the powder metallurgy billet. As a result of FSP, reinforcements were produced in-situ with reaction between Al and Ni powders. In order to optimize the FSP parameters, microstructural and mechanical evaluations were performed. The optimized parameters including tool rotational speed ( ) and tool travelling speed ( ) were determined to be 1000 rpm and 100 mm/min respectively. Microstructural evaluation was performed by optical microscopy, scanning electron microscopy (SEM) and transmission electron microscopy (TEM). Keywords: Aluminum matrix nanocomposite, Friction Stir Processing, Nickel aluminides, Mechanical Properties, Wear