Free CaO impurity containing magnesia has intrinsic shortcomings of poor resistance to hydration, thermal shock and slag penetration. Here, a novel approach, the introduction of Al2O3–TiO2 composite powder, is proposed to enhance the performances of such magnesia in present work. The results showed that with increasing the composite powder, CaTiO3 and Mg1+xAl2(1-x)TixO4 phases were sequentially formed at MgO grain boundaries, which affected the microstructure and properties of the specimens. The addition of composite powder enhanced the MgO grains growth and conversion of free CaO to CaTiO3, and therefore weight gain rate of the specimens after hydration test reduced from 0.212% to 0.097% with increasing Al2O3–TiO2 from 0 wt% to 7 wt%. The formed CaTiO3 and Mg1+xAl2(1-x)TixO4 phases reduced the thermal expansion coefficient and induced the crack deflection, and therefore thermal shock resistance of the specimens improved obviously with the composite powder content. Besides, slag penetration resistance of the specimens was enhanced significantly as 3 wt% composite powder was added, attributing to the increase of MgO grain size and contact angle and formation of high stable intergranular CaTiO3 phase. However, further increasing Al2O3–TiO2 lowered the slag penetration resistance due to the reduction of contact angle and formation of low stable Mg1+xAl2(1-x)TixO4 phase at MgO grain boundaries.