The physical properties of a para-aramid/nylon hybrid filament, such as the denier, tensile properties and thermal shrinkage, were examined according to the processing conditions of air-textured yarn (ATY), such as the yarn speed, air pressure, heater temperature, and overfeed ratio. The instability for identifying loop formation on the yarn surface was also measured and discussed. The yarn linear density increased with increasing overfeed of the core and effect and air pressure. The tenacity decreased with increasing core overfeed and air pressure, whereas the breaking strain increased. The initial modulus of the hybrid filament decreased with increasing core overfeed, air pressure and heat-set temperature of the heater. The instability of the hybrid ATY yarns increased with increasing heater temperature. The dry thermal shrinkage increased with increasing core overfeed, and the wet thermal shrinkage decreased with increasing effect overfeed. The core overfeed was found to be a key factor affecting the physical properties of the para-aramid/nylon hybrid ATY, whereas the air pressure was found to influence only the yarn mechanical properties. In addition, the heating temperature affected the instability of the para-aramid/nylon hybrid ATY. These results show that a low core overfeed and high effect overfeed are needed for good thermal dimensional stability to wet and dry heat during thermal treatment processes.