The oxidation behavior of gas-atomized Al and Al alloy powder green compacts during heating prior to hot extrusion compaction was studied at laboratory and industrial scales by TGA, DSC, DTA, EDX, TEM and XRD methods. The effect of the heating of green compacts on the mechanical properties of the powder-extruded samples was assessed. Significant oxidation of Al and Al alloy powder green compacts takes place in the solid state during heating in air. The onset and intensity of oxidation were affected by the Mg content, the surface area of the powder and the volume of the powder green compacts. An exothermic heat associated with the oxidation of Al and Al alloy powders resulted in intense overheating of bulky powder green compacts during heating in air. The samples extruded from the powder green compacts heated in air exhibited reduced strength. The loss in strength was especially pronounced in the case of Mg-containing Al alloy powders. Mg diffuses from a powder metallic core toward the native Al2O3 surface layer present on as-atomized Al alloy powders; it reacts with oxygen present in air and in the Al2O3 surface layer where the MgO phase forms, eventually resulting in the depletion of Mg from the powder core. Materials extruded from Al powders depleted of Mg do not exhibit effective Al-Mg solid solution strengthening or strengthening by Mg-containing precipitates. Economically viable approaches to avoiding the detrimental effects of powder oxidation during the heating of green compacts prior to hot working consolidation are discussed.