Nanocrystalline Al-doped nickel ferrite powders have been synthesized by sol–gel auto-ignition method and the effect of non-magnetic aluminum content on the structural and magnetic properties has been studied. The X-ray diffraction (XRD) revealed that the powders obtained are single phase with inverse spinel structure. The calculated grain sizes from XRD data have been verified using transmission electron microscopy (TEM). TEM photographs show that the powders consist of nanometer-sized grains. It was observed that the characteristic grain size decreases from 29 to 6 nm as the non-magnetic Al content increases, which was attributed to the influence of non-magnetic Al concentration on the grain size. Magnetic hysteresis loops were measured at room temperature with a maximum applied magnetic field of ≈1 T. As aluminum content increases, the measured magnetic hysteresis curves become more and more narrow and the saturation magnetization and remanent magnetization both decreased. The reduction of magnetization compared to bulk is a consequence of spin non-collinearity. Further reduction of magnetization with increase of aluminum content is caused by non-magnetic Al3+ ions and weakened interaction between sublattices. This, as well as the decrease in hysteresis was understood in terms of the decrease in particle size.