The present work has examined the mechanical properties and microstructure of the new continuous oxynitride fiber and also examined the potentials of the fiber for reinforcing aluminum alloys. The composites were fabricated by squeeze casting, and the reactivity of the fiber with aluminum melt and the microstructure of the fiber/matrix interface were investigated. The fiber had good strength, reaching 4 GPa, and good Young's modulus, about 170 GPa, at room temperature. Scatter in strength was quite small. The fiber was almost amorphous but had the nanocrystalline structure locally. The microstructure of the fiber/matrix interface in the composites showed little trace of reaction. An amorphous-like layer thinner than 3 nm existed at the interface. DTA analysis revealed the exothermic reaction between the oxynitride fiber and pure aluminum occurred at about 830 °C. In the case of the fiber/6061 alloy, this critical temperature was slightly lower. The strength of the composite with the oxynitride fiber was better than that with the continuous alumina fiber but slightly lower than those with the silicon carbide fibers. The new oxynitride fiber has a great potential for use in aluminum matrix composites in general industrial fields.