Synthesis of oxide dispersion strengthened (ODS) SS316L with homogeneously dispersed oxide nanoparticles via additive manufacturing is garnering heightened interest, with the primary challenge being the development of optimized ODS powder precursors. This study presents a novel mechano-chemical bonding (MCB) technique for producing spheroidal SS316L powder encapsulating nanoscale yttrium oxide (Y2O3) particles, preserving enhanced packing density and rheological properties suitable for directed energy deposition (DED). Microstructural and mechanical characterization of DED-fabricated specimens were conducted using scanning electron microscopy (SEM), X-ray diffractometry (XRD), transmission electron microscopy (TEM), micro indentation, and uniaxial tensile testing. Results demonstrate successful synthesis of spheroidal ODS SS316L powder feedstock with embedded ultrafine oxide particles, exhibiting improved flowability and packing density. Face-centered cubic (FCC) gamma-austenite constitutes the primary phase in both pristine and Y2O3-reinforced SS316L fabricated via DED, with uniform yttrium distribution detected in the ODS SS316L matrix. Incorporation of 1.0 wt.% Y2O3 effectively refined the sub grain structure and induced columnar-to-elongated grain transformation in SS316L, attributed to increased nucleation sites provided by Y-rich precipitates in the melt pool. Ultimate tensile strengths (UTS) of pure SS316L and SS316L with 0.3, 0.5, and 1.0 wt.% Y2O3 were measured at 694.0, 587.6, 594.2, and 606.2 MPa, respectively. Fractographic analysis revealed ductile and ductile-brittle fracture modes in SS316L and ODS SS316L specimens, respectively, indicating suboptimal heat input during ODS SS316L fabrication. This investigation establishes a novel approach for scalable ODS alloy powder production via high-energy mixing and provides insights into additive manufacturing of ODS alloys utilizing ceramic-coated metallic powders.