To investigate the effective transformation of encapsulated aluminum nitride (AlN), and to propose the relationship between ball milling, secondary aluminum dross (SAD) properties, and environmental risks during thermal treatment, factors such as milling, calcination conditions, affecting the reactivity elimination ratio, transformation behavior, and environmental risks of oxidized products were examined. Ball-milled SAD exhibited 67 kJ/mol lower in the activation energy for oxidation and a reactivity elimination ratio of 80 %. In contrast, the reactivity elimination ratio of non-milled SAD significantly decreased with increasing calcination temperature and time, whose trend was opposite to the milled dross. It was attributed to the activation process, which followed the shell-core mechanism described by four spatial distributions. At elevated temperatures, AlN transformed to wurtzite AlN and subsequently evolved into Al2O3, accompanied by the reconstruction of salts and oxides. The interactions between Al, Si and anions affected AlN evolution and reduced heavy metal concentrations. Although the ball-milled samples exhibited higher leaching concentration of Ni and Pb, these concentrations decreased with higher temperature and longer reaction time. This work established the combined relationship between ball milling, SAD properties, reactivity elimination and heavy metal leaching, offering a sustainable and cost-effective approach for mitigating the reactivity and toxicity of SAD, while also guiding industrial aluminum recycling operation.