In the present study, Al–Mg binary eutectic alloy nanoparticles were synthesized through the electrical wire explosion technique (EWET) in an inert ambience. High-speed imaging was carried out to visualize sublimation process of alloy wire and subsequent formation of nanoparticle through the condensation process. The fundamental gas-phase kinetics is investigated by the embedded atom method (EAM) and reactive hard-sphere model to elucidate the mechanisms governing the formation of finer particles of eutectic Al-Mg alloy. The condensed phase transformations are analysed through size-dependent thermodynamics and growth kinetics modelling, which has shown that the adsorption controlled growth is responsible for the generation of polydispersed particles. The formation of Al20Mg23 nanoparticles and its morphological features were characterised through XRD and SEM/EDS analysis. High-resolution transmission electron microscopy (HRTEM) along with the selected area electron diffraction (SAED) confirmed the spherical morphology, crystallinity, lognormal particle size distribution and the multiphase microstructure of the eutectic AlMg nanoparticles. The formation of multiphase alloy nanoparticles is attributed to the insignificant difference in melting temperatures of Al and Mg and phase boundary modifications due to size-effect. Scanning transmission electron microscopy (STEM) revealed the spatial distribution of Al and Mg within the alloy nanoparticle. Differential scanning calorimetry (DSC) confirmed the reduction in melting temperature and fusion enthalpy of eutectic Al–Mg alloy nanoparticles. It is proposed as a potential substitute for Al nanoparticles to reduce the ignition temperature, agglomeration and two-phase flow losses for realising improved combustion performance in solid rocket propellants. © 2020 Elsevier B.V.