An oxide dispersion strengthened martensitic steel excellent in high-temperature strength having residual .alpha.-grains can be manufactured by a method comprising mixing either element powders or alloy powders and a Y.sub.2O.sub.3 powder; subjecting the resulting mixed powder to mechanical alloying treatment; solidifying the resulting alloyed powder by hot extrusion; and subjecting the resulting extruded solidified material to final heat treatment involving normalizing and tempering heat treatment to thereby manufacture an oxide dispersion strengthened martensitic steel in which Y.sub.2O.sub.3 particles are dispersed in the steel, wherein .alpha.to .gamma.transformation is not allowed to occur during the described hot extrusion and the proportion of residual .alpha.-grains in which oxide particles are finely dispersed in high density is increased by controlling the mixture ratio of the powders for the mechanical alloying treatment.