Al-l4wt.%Ni-l4wt.% Mm(Mm=misch metal) alloy powders rapidly solidified by the gas atomization method were subjected to mechanical milling(MM). The morphology, microstructure and hardness of the powders were investigated as a function of milling time using scanning electron microscopy(SEM), transmission electron microscopy(TEM) and Vickers microhardness tester. Microstructural evolution in gas-atomized Al-l4wt.%Ni-l4wt.% Mm(Mm=misch metal) alloy powders was studied during mechanical milling. It was noted that the as-solidified particle size of $200mutextrm{m}$ decreases during the first 48 hours and then increases up to 72 hours of milling due to cold bonding and subsequently there was continuous refinement to $20mutextrm{m}$ on milling to 200 hours. Two microstructurally different zones, Zone A, which is fine microstructure area and Zone B, which has the structure of the as-solidified powder, were observed. The average thickness of the Zone A layer increased from about 10 to $15mutextrm{m}$ in the powder milled for 24 hours. Increasing the milling time to 72 hours resulted in the formation of a thicker and more uniform Zone A layer, whose thickness increased to about $30~50mutextrm{m}$. The TEM micrograph of ball milled powder for 200 hours shows formation of nano-particles, less than 20 nm in size, embedded in an Al matrix.