A composite of rapidly solidified Al-6061 alloy powder with graphite particle reinforcements was prepared by ball milling and subsequent hot extrusion. The microstructure and mechanical properties of these composites were investigated as a function of milling time. With increasing milling time, the gas atomized initially and spherical powders became elongated with a maximum aspect ratio after milling for 30 h. Then, refinement and spheroidization were achieved by further milling to 70 h with a homogeneous and fine dispersion of graphite particles forming between the matrix alloy layers. The best compression and wear properties were obtained in the powder milled for 70 h, associated with the increased fine and homogeneous distribution of graphite particles in the aluminum alloy matrix.