A novel technique for coating a multi-component layer of finer stainless steel/zirconia around spherical stainless steel core particles is described. Composite particle have been prepared by using our new two step mechanofusion process that is one of the mechanical combining processes. Spherical stainless steel particles of 35 mum in mean diameter are employed as core materials, and zirconia particles of 0.5 mum in diameter are used for coating around core particles in a primary mechanofusion process. Cu particles of < 44 mum in diameter, spherical stainless steel particles of < 25 mum diameter, and flaky stainless steel particles of 44 mum in mean diameter are tried for a secondary coating around primary composite particles. A multi-component coating layer, namely coating layer of zirconia phase with dispersed finer stainless particles is obtained by only milling flaky stainless particles. It is revealed that flaky stainless particles are refined by an action (kneading and breaking) similar to mechanical alloying.