In this study, oxide (Y2O3)-embedded Ni particles were fabricated via a new process. The process involves the mechanical hydrogenation of Ni–Y alloy into Ni–YH2 and the selective oxidation of Ni–YH2 to Ni–Y2O3. The alloy powders were prepared for sintering by the mechanical alloying of a mixed powder. The powder was prepared with a desired composition (Ni–20wt.%Cr–1.2wt.%Y2O3) by adding Ni and Cr powders to the Ni–Y2O3 composite prepared by the new process. For comparison, a mixed powder with the same composite was prepared using a conventional mechanical alloying (MA) approach. Samples of the two powders were sintered by SPS at 850, 900, 950, and 1,000 ^oC. The relative densities of all samples were higher than 99.7% at all sintering temperatures. The oxide particles and matrix grain sizes of the Ni–20Cr–1.2Y2O3 alloy prepared by this new process were finer than those in alloys fabricated by conventional MA processes. Therefore, the improvement in the mechanical properties of the Ni–20Cr–1.2Y2O3 alloy prepared by the new process was attributed to the refinement of the oxide particles.