$Al_2O_3$-copper alloy has been successfully made by gas atomization, mechanical alloying and hot pressing. In order to investigate microstructure and phase, it has been studied by using scanning electron microscope, transmission electron microscope and X-ray diffractometor. Mechanical properties have been examined using hardness tester and compressive tester according to annealing temperature. Although comparatively large Cu-Al powders are milled, the reaction between Cu-Al and $Cu_2O$ occurs and very fine $Al_2O_3$ particles in the matrix particles (5-10nm) are obtained. Compressive strength of this alloy is more than that of GlidCop Al60.