We present a simple and effective method for synthesis of high-purity nano-AlN powders by arc-discharge plasma at atmospheric pressure, with an Al wire used as the electrodes and N2 or mixture of N2 and H2 used as the plasma working gas. The effects of the N2 flow rate and addition of H2 to the N2 plasma on the compositions of the obtained powders were investigated. The results show that the increase in the working-gas flow rate improved the purity of AlN in the product and that a small amount of H2 addition to the N2 plasma significantly increased the yield of as-synthesized powders. Based on characterizations of the as-synthesized particles and Al wire surface before and after the plasma process, possible formation processes of the obtained micro- and nanoparticles were analyzed.