The limited plastic deformability of conventional high-strength alloy powders during laser-assisted cold spraying (LACS) often results in excessive porosity and deteriorated mechanical integrity of deposits. In this study, nano-yttria (Y2O3)-reinforced 7075 Al micro–nano composite powders were fabricated via low-energy ball milling to improve deposition behavior and bonding efficiency. The surface-dispersed Y2O3 nanoparticles increased laser absorptivity by 14.03% at 915 nm, promoting adiabatic shear instability during impact and thereby enhancing plastic flow and metallurgical bonding between particles. Microstructural modification induced by nano-ceramic incorporation raised the deposition efficiency by 79.8% (from 27.42 ± 0.8 to 49.31 ± 1.2%) and strengthened interfacial cohesion through grain boundary pinning and dislocation blocking, reducing porosity by 93% (from 3.30 to 0.23%) and achieving near-theoretical densification. Near-pore-free microstructure (0.23% porosity) was achieved alongside a 50.5% enhancement in microhardness (from 110.5 ± 2.1 to 166.3 ± 3.2 HV), which is attributed to the improved laser-powder interaction. This elucidates the mechanisms of densification and strengthening governed by nano-ceramic addition, underscoring the efficacy of this approach for fabricating high-density aluminum alloy coatings with minimal defects via LACS.