Composites with ferromagnetic nanoparticles, Fe and Fe50Ni50, dispersed in Al2O3 have been synthesized by a solution phase technique. The structure and magnetic properties of these composites with varying fractions of Al2O3 have been investigated. Both Fe and Fe50Ni50 nanoparticles are amorphous in the as-prepared state and become crystalline on heat treating with near equilibrium lattice parameters of 0.287 nm and 0.358 nm respectively. The interparticle distance increases with increasing Al2O3 from 0 wt.% to 20 wt.%. The size of Fe nanoparticles is ∼40 nm while the Fe50Ni50 nanoparticles are ∼20 nm in size. The Fe and Fe50Ni50 nanoparticles dispersed composites are found to be ferromagnetic at room temperature both in the as-prepared and heat treated conditions with clear coercive fields of 5.5–35 × 103 A m−1. The saturation magnetization increases by orders of magnitude on heat treatment, for e.g. from <1.0 emu g−1 to 143.4 emu g−1 for Fe–15 wt.% Al2O3 and 95.6 emu g−1 for Fe50Ni50–15 wt.% Al2O3. The Fe-composites exhibit a Curie transition at ∼1000 K while the Fe50Ni50 composites exhibit a transition at 880 K, both temperatures close to bulk values.