The untreated γ-AlON powders were proposed to prepare highly transparent γ-AlON ceramics by aqueous gel-casting technique and two-step sintering process. The related mechanism of hydrolysis of γ-AlON powders was discussed. The surface of the synthesized γ-AlON powders is covered with a layer of aluminum hydroxides compound. As the period of hydrolysis extends, the surface layer dissolved, and the boehmite and bayerite gradually formed, which is characterized by various techniques including XRD, FT-IR, XPS and TEM. The low viscosity slurry with high solids loading (53 vol%) was obtained by γ-AlON powders without any surface modification treatments as a result of the slow hydrolysis process. In addition, compared with the dry pressed sample, the sample (4.12 mm in thickness) prepared by aqueous gel-casting exhibits superior in-line transmittance of 81–83% in the visible region, which could be ascribed to the more homogenous and denser microstructure of the green body. Finally, the Weibull modulus and characteristic strength of γ-AlON transparent ceramic were determined to be 4.85 and 295 MPa, respectively.