The p-type Bi0.4Sb1.6Te3 system compounds with fine microstructure were prepared by mechanical alloying (MA) and equal channel angular extrusion (ECAE) in the present work. A preferentially orientated microstructure that the (1 1 0) plane preferentially orientated along the perpendicular direction to extrusion and the basal planes (0 0 l) preferentially orientated along the extrusion direction was formed in the ECAE process, and the orientation factors F of the basal planes (0 0 l) of the extruded alloys was about 0.36. The electrical and thermal transmission performances were strongly affected by the preferential orientation and the thermoelectric properties in the extrusion direction were obviously improved by the ECAE process. The maximum dimensionless figure of merit of the 4 wt.% Te-doped Bi0.4Sb1.6Te3 alloys was obtained in the extrusion direction at testing temperature 343 K, ZT = 0.979.