In this study, aluminum metal matrix composites were produced by adding Er2O3 (erbium oxide) at different weight ratios (0, 0.3, 1, and 3 wt.%) as a reinforcement to the AA6061 aluminum alloy to improve its mechanical properties, and the effect of these additions on the microstructure, hardness, and density of the alloy was investigated. All samples were evaluated comparatively using the identical ball milling, pressing, and sintering parameters. The powders were mixed in a high-energy ball mill at 350 rpm for 2 hours, followed by sintering process at 560°C for 4 hours. SEM Microstructural analyses suggest that Er2O3 addition had significant effects on the microstructure. As the reinforcement ratio increased, the AA6061 powders became finer and angular after the mixing process, and a homogeneous distribution along with grain refinement was observed up to the 1 wt.% addition. However, 3 wt.% reinforcement element leads agglomeration as well as improved inhomogeneity on powder morphology. After sintering, the microstructural analyses revealed that the addition of low amounts of Er2O3 strengthened the grain boundaries but deteriorated the bonding, while higher reinforcement levels increased porosity and negatively influenced the structural integrity. Mechanical tests showed that the highest hardness and density were achieved in the sample containing 1% Er2O3. At 3 wt.% reinforcement, an decrease in strength and density were observed due to the effects of agglomeration and microcrack formation. Consequently, the optimum reinforcement ratio for the AA6061-Er2O3 composites was determined to be 1 wt.% by increasing 20% hardness value which makes this composite system potential candidate for many applications.