Effects of Ni encapsulation on the electrochemical properties of a Ni-free alloy have been studied in this work. The encapsulation was by means of electroless nickel plating of the alloy powders either in an acidic or a basic solution. It was found that Ni encapsulation not only enhanced the discharge capacity, but also increased the activation rate. A Ni-P encapsulated Ti 0 . 5 Zr 0 . 5 Mn 1 Cr 1 alloy showed a discharge capacity of 175 mAh/g, which was 9 times better than that of the as-pulverized alloy (17 mAh/g). However, this discharge capacity was deteriorated by a heat treatment at 750 o C for 62 h. This damaging effect was resulted from Ni migration into the alloy matrix during heat treatment. SEM, EPMA and XRD results indicated that a complicated diffusive layer was formed around the particle surface with a crystal structure different from C14, which inhibited the charge-discharge reactions. The thickness of this diffusive layer increased with the temperature of heat treatment, and was more significant for the Ni layer coated in an acidic solution.