The work aims to improve the microstructure and mechanical properties of NiCrAlY coating. Three kinds of samples, 100wt.% NiCrAlY, NiCrAlY+10wt.% Al2O3 and NiCrAlY+20wt.% Al2O3, were prepared by directed laser deposition. X-ray diffraction (XRD), scanning electron microscopy (SEM), energy dispersive X-ray spectrometer (EDS) and electron probe X-ray microanalyzer (EPMA) were used to analyze the phase composition, microstructure and elemental composition of samples with different constituents, respectively. The microhardness and friction coefficient of the samples were measured by Vickers indenter and universal friction and wear tester. After added into NiCrAlY, Al2O3 particles were distributed in an irregular shape or in a sphere within or at grain boundaries with a size less than 2 μm. The three composite coating samples were composed of γ-Ni and β-NiAl phases. After Al2O3 particles were added, the primary arm spacing of the coating decreased and the Ni-Y phase decreased significantly, and Y2O3 ceramic particles were dispersed in the crystal and grain boundaries of the matrix. The average microhardness and friction coefficients of NiCrAlY, NiCrAlY+10%Al2O3 and NiCrAlY+20%Al2O3 coatings were (440.69±30)HV0.2, (482.18±30)HV0.2 and (453.09±20)HV0.2, respectively and 0.77, 0.55 and 0.52, respectively. After Al2O3 particles are added, the matrix grain size is refined to a certain extent, and the microhardness of coatings is improved under the effect of grain refinement and ceramic particle dispersion. In particular, the microhardness of NiCrAlY+10%Al2O3 is the highest, which is about 9.5% higher than that of NiCrAlY matrix. In addition, it is found that the friction coefficient of the coating decreases and the wear resistance increases after Al2O3 particles are added. The friction coefficient of NiCrAlY+ 10%Al2O3 and NiCrAlY+20%Al2O3 coatings decreases by more than 25% compared with NiCrAlY samples. Among them, the NiCrAlY+10%Al2O3 sample has the smallest wear loss, which is nearly 13.5% lower than that of the NiCrAlY coating, and the wear resistance is obviously improved.