In this study, nanocrystalline Ni powders and thermally sprayed coatings, containing ultrafine AlN particles, were synthesized and characterized. The results indicated that the presence of AlN particles in the powders drastically decreased the dimension of agglomerates formed by cryomilling and increased the surface roughness of the agglomerates. The AlN phase was broken down into ultrafine particles of approximately 30 nm in size. These particles were dispersed in the Ni matrix and enhanced the development of a nanocrystalline structure in the Ni matrix during cryomilling. Selected-area diffraction patterns, obtained from transmission electron microscopy (TEM) and X-ray mapping with scanning electron microscopy (SEM), confirmed the presence of AlN particles in the coatings. The presence of AlN particles also led to an increase in the amount of NiO phase that was distributed in the coating, in the form of ultrafine, round particles. AlN particles increased the microhardness of the Ni coating by approximately 60 pct. Indentation-fracture results also indicated that the fine, dispersed AlN particles raised the apparent toughness of the Ni coating. The synthesized Ni coatings containing ultrafine AlN particles were characterized as equiaxed nanocrystalline grains with an average size of 24 nm, in which twins were observed. The increase in microhardness resulted from both grain refinement and the presence of ultrafine particles. The latter played the primary role in strengthening.