An optimum route to fabricate the ferrous alloy dispersed Al_2O_3 nanocomposites such as Al_2O_3/Fe-Ni and Al_2O_3/Fe-Co with sound microstructure and desired properties was investigated. The composites were fabricated by the sintering of powder mixtures of Al_2O_3 and nano-sized ferrous alloy, in which the alloy was prepared by solution-chemistry routes using metal nitrates powders and a subsequent hydorgen reduction process. Microstructural observation of reduced powder mixture revealed that the Fe-Ni or Fe-Co alloy particles of about 20 nm in size homogeneously surrounded Al_2O_3, forming nanocomposite powder. The sintered Al_2O_3/Fe-Ni composite showed the formation of FeAl_2O_4 phase, while the reaction phases were not observed in Al_2O_3/Fe-Co composite. Hot-pressed Al_2O_3/Fe-Ni composite showed improved mechanical properties and magnetic response. The properties are discussed in terms of microstructural characteristics such as the distribution and size of alloy particles.