Two strategies have been extensively employed to develop advanced accident tolerant fuels (ATF): improving thermal conductivity and producing large grain sized pellets. However, there are few reports on the simultaneous utilization of both strategies. In this work, we fabricated Mo–Cr alloy reinforced UO2 (UMC) composite pellet with both high thermal conductivity and large grain size by a simple in-situ alloying method for the first time. The average grain size of UO2 increased from 6 μm to 113 μm. Thermal conductivity of the UMC pellet (with 2 vol% Mo) at 1200 °C increased by 36.46% compared with pure UO2. The increase rate of thermal conductivity per 1 vol% dopant reached about 18%. The Mo–Cr alloy formed continuous micro-cell layer around UO2 particles. Such continuous micro-cell Mo–Cr alloy layer and increase of UO2 grain size both helped improve the thermal conductivity of UMC composite pellets. Thermal expansion coefficient of the UMC under the operating temperature decreased by 11.90% compared with pure UO2. The oxidation resistance of the UMC pellet under high temperature steam was also improved. This work provides a new strategy towards fabricating ATF with both high thermal conductivity and large grain size.