Aluminum oxynitride (AlON) powders were synthesized by a novel carbothermal reduction and nitridation (CRN) method. Homogenous and fluffy AlOOH/C core-shell nanoparticle precursor was hydrothermally synthesized with aluminum nitrate hydrate, sucrose and urea as starting materials. Then single-phase AlON powders were synthesized by CRN method at 1700 °C for 2 h. The phase transition and growth of Al2O3 particles was effectively retarded by the amorphous carbon nano-layers on the surface of precursor, resulting in significantly lower reaction temperature and further smaller particle size. Based on above fine AlON raw material, transparent AlON ceramic was prepared by pressureless sintering at 1880 ℃ with the in-line transmittance above 80 %.