Aluminum matrix composites reinforced with various contents of Al2O3 nanoparticles coated with Cu (0, 5, 10 and 15 wt. %) were prepared by powder metallurgy technique. Al2O3 particles are coated with 30 wt. % Cu by electroless deposition after surface activation using 10 wt. % silver. Appropriate amounts of Al and Al2O3 (coated with Cu) are well mixed in a ball mill (4:1 balls to powder ratio) for 6 h. Then, the mixture is sintered by hot pressing at 500oC under 700 MPa uniaxial pressure for 45min in argon atmosphere. Phase identification and microstructure of sintered samples are studied. The density, thermal expansion and mechanical properties were measured. Increasing Al2O3 nanoparticles coated with Cu highly influences composite samples. Good distribution of Al2O3 coated with Cu in the Al matrix and their improved wettability, improve the microstructure, hardness, compressive strength and thermal expansion properties. However, addition of Al2O3 coated with Cu shows a deteriorated effect on both densification and ductility.