The nano Al65Fe25Ni10 alloy was prepared by mechanical alloying. The evolutions of the microstructure and magnetic properties of the mixture powder with different milling time were investigated by XRD and VSM. The results indicate that the crystalline size decreases sharply, while the inner strain increases rapidly at the early stage of milling. There is no obvious change of inner strain and crystalline size with the increase of milling time after 50 h. The coercivity of the as-milled powders increases firstly but then decreases with the increase of milling time. The coercivity is proportional to the D-6 as the grain size is very small; however, it is proportional to the reverse of grain size when the crystalline size increases.