In this study, fine aluminum oxynitride (γ-AlON) powder was synthesized from a solid-state hydrolysis byproduct for the first time through in-depth research on the hydrolysis of metal Al powder. Hydrolysis begins on the surface of the Al particles, the initial solid-state hydrolysis byproduct is AlOOH and then Al(OH)₃, and during the reaction stage, a unique core‒shell structure with a hollow outer core composite precursor is formed. Pure-phase AlON powder can be synthesized by utilizing a composite precursor with an appropriate Al₂O₃/Al ratio (Al₂O₃/Al = 10.27) under a flowing N₂ atmosphere. The core‒shell structure decreases the diffusion distance between raw materials and reduces the nitridation temperature (1700 °C). Furthermore, the unique hollow structure of the composite precursor results in some of the synthesized AlON powder also having a hollow structure, which is conducive to powder crushing, and fine nanoscale (D₅₀ = 292 nm) powder can be obtained only via a grinding process. The combination of Al–H₂O reaction and direct nitridation (DN) methods has led to the development of a new synthesis method for AlON powder and provides a new method for the recovery of the solid-state hydrolysis byproduct of metal Al powder.