Studies were carried out on the microstructure and thermal stability of an ultrafine Al/Al2O3 composite with high strength and low density. Transmission electron microscopy indicated that Al2O3 shells remained undeformed below 550 °C, which limited grain growth of Al. Both transmission electron microscopy and x-ray diffraction analysis indicated that no obvious grain growth of Al with time occurred upon annealing at 620 °C. After almost all the alumina shells were destroyed following annealing at 620 °C, the Al2O3 fragments with various morphologies distributed in the material could still limit the migration of Al grain boundaries to increase the thermal stability of the material. After Al melted and resolidified, the grain sizes of Al were still about 200 nm. The bulk composite sample showed good dimensional stability. Even if the Al grains melted, the network of Al2O3 fragments kept the sample from deforming due to the wetting of Al2O3 network with liquid Al.