Nano-layered ternary compounds Mn+1AXn phases combine properties of both ceramics and metals, holding promising prospect for various applications. In this work, the microstructure evolution of coarse Ti3AlC2 particles, as well as the microstructure, physical properties and arc-induced degradation of Ag/Ti3AlC2 electrical contact materials (ECMs) with varying particle sizes of Ti3AlC2 were investigated. The Ti3AlC2 particles milled by vibration were inhomogeneous, whereas those milled through high energy ball milling for 3 h were basically uniformly refined and delaminated to nano-flakes with edge length of ∼100–350 nm without obvious decomposition. With decreasing particle size, the interaction between Ag and Ti3AlC2 was enhanced, thus mitigating the decrease of density and hardness after sintering. Though fine Ti3AlC2 particles led to increased hardness, easier decomposition of finer Ti3AlC2 during both sintering and arc erosion resulted in greater thermal accumulation and accelerated erosion process, thus negatively impacting the arc erosion resistance of Ag/Ti3AlC2 ECMs.