We studied the formation mechanism of ferromagnetic nanocontacts (NCs) around 1–2 nm in diameter in thin AlO nano-oxide layer (NOL) through in situ conductive atomic force microscopy (c-AFM), which is the only method suitable for measuring morphological changes in features this small. Spin valves (SVs) with Fe Co NCs in AlO NOL fabricated by ion-assisted-oxidation (IAO) irradiated onto 1.3-nm-thick Al had nanocontact magnetoresistance (NCMR) characteristics with the MR ratio of 5% for 1 m . According to measurements with c-AFM, these NCs were mostly located at the valleys between the AlO grains or the edge of the grain. In other words, NCs were formed in the oxidation and cohesion process of Al by the IAO. Moreover, we found that the high-temperature annealing process improved the MR ratio to around 10% for 0.5 m . The high-temperature annealing process may involve the AlO morphological change and have led the Al atoms in NCs to migrate to AlO by combining with oxygen as impurities. Then, the morphological changes and migration of Al caused NCs to be the low resistivity and the short length.