In this paper, a method of recycling aluminum and steel chip is presented by applying powder methodology. This method consists of the composite production, cold pressing, a new sintering method, definition of mechanical properties and fracture toughness. AISI 1040 steel chip was used as reinforcement materials and AlMg1SiCu aluminum chip were used as matrix materials. AISI 1040 steel chip reinforcement was added into the matrix for 20%, 30% and 40% weight ratios. To determine the mechanical behaviors of composites, compressive strength, three point bending, hardness and fracture toughness, initial notch depth method tests were performed at ambient condition. It was observed that steel chip reinforcement provided increased compressive strength and hardness, but the fracture toughness of composites decreased versus to increasing steel content. Considering analyses of microscopic micrographs of composites (SEM), by increasing steel content causes an increase in the angular facets on fracture surfaces. © 2013 Elsevier Ltd.