This investigation involves the fabrication of an aluminium metal matrix composite using AA6061-T6 alloy as the matrix, incorporating 2 wt% of hard ceramic (TiB2, 14 μm particle size) and 0.5 wt% of rare earth oxide (La2O3, 40–50 nm particle size) reinforcement powders through ultrasonic assisted stir casting. The study examines the microstructure, residual stress, and mechanical properties alongside performing pin-on-disk wear tests. Taguchi's optimization and ANOVA are used to optimize the wear rate of the composite using three control parameters: Load, Sliding Distance, and Sliding Speed. Results from optical micrography and field emission scanning electron microscopy (FESEM) with energy-dispersive spectrometer (EDS) analysis confirm the uniform distribution of TiB2 and La2O3 particles within the AA6061-T6 volume when ultrasonic stirring is employed. The composite's microhardness is found to increase by 25.15 %, and its tensile strength by 31.32 % compared to the base alloy due to a higher dislocation density. ANOVA highlights Load as the primary influencer, contributing 69.54 %, followed by Sliding Distance (17.45 %) and Sliding Speed (12.56 %). The optimal parameters for minimizing wear rate are found to be Load (20 N), Sliding Distance (1500 m), and Sliding Speed (2.5 m/s). Scanning Electron Microscope (SEM) images of worn surfaces reveal various mechanisms such as abrasion, delamination, and adhesion, with abrasion being the dominant mechanism. Residual stress increases with the addition of TiB2 and La2O3 particles in the matrix, showing transitions from tensile to compressive stress from the inner to the outer surface of the composite casting.