In this study, we propose a novel method for preparation of nanocrystalline powder precursors for powder metallurgy processing. Nickel nanocrystalline powders were prepared by selective leaching of the Al-20Ni alloys in NaOH solution. The powders were studied by SEM, TEM, XRD, magnetometry and by small angle neutron scattering. The prepared powders had internal structure formed by grains of 5–50nm in size depending on the leaching temperature. It was also proven that slight grain coarsening occurred during heating of particles at 40–80°C for one hour. Magnetometry testing revealed significantly reduced magnetization of nanocrystalline nickel which is related to the internal structure. The results indicate that nickel powders prepared by selective leaching are suitable precursor for powder metallurgical preparation of bulk products with interesting physical and possible also mechanical properties.