Samples from an ultrafine-grained Cu-4.5vol.%Al2O3 nanocomposite rod fabricated by powder compact extrusion were annealed at 400 and 700 degrees C for 15 min respectively, and their microstructure and mechanical properties were investigated. It shows that the dislocation density decreased and Al2O3 nanoparticles severely coarsened after 700 degrees C annealing, leading to simultaneous decrease of both strength and tensile ductility (annealing softening). On the other hand, annealing at 400 degrees C also caused a dislocation density decrease, but without Al2O3 nanoparticle coarsening, and this leads to an unexpected and significant increase of both strength and ductility (annealing hardening). It is believed that the interaction between the dislocations and Al2O3 nanoparticles within the as-extruded sample weakens the Orowan strengthening, while the dislocation density decrease caused by 400 degrees C annealing allows the enhancement of the Orowan strengthening effect with a benefit of simultaneous increase of both strength and tensile ductility.