A novel chemical alloying method has been developed for the fabrication of nanocrystalline thermoelectric alloy Bismuth telluride, Bi2Te3. The method consists of a combination of solution chemical method and thermal processing under controlled heating conditions. The components have been coprecipitated from a solution and the precursor consists of a solid solution of the different intermediate compounds and exhibits high reactivity. Calcination and hydrogen reduction of the precursor at moderate temperature, 350 degreesC, for 2 h resulted in the alloying of these elements to obtain the pure phase of the thermoelectric material in fine powder. The method is simpler than conventional melt processing and produced a 95-98% yield in laboratory scale. High concentration of grain boundaries provided by nanostructuring is expected to lower the thermal conductivity of thermoelectric material and further increase the performance.