Structural changes of 1μmα-Al2O3 particles in Watt's Ni matrix during annealing at 1000°C were examined by X-ray diffraction to account for the increase in tensile strength that occurs after an induction period of 10 hours. On annealing at 1000°C, an NiAl2O4 phase layer was found to form as a result of the reaction between the Al2O3 particles and the NiO layer which adheres on the particle, and the particles changed into a composite, NiO /NiAl2O4/Al2O3. The reaction-induced particle growth, after the induction period of 10 hours, was found to fill up the space between the particles and the matrix, which arose from heating the composite. The strengthening of the composite after the induction period of 10 hours was found to be described by the Orowan mechanism. Evidence of a compressive stress region around the particles is presented.