Of the many existing inspection or monitoring systems, each has its own advantages and drawbacks. These systems are usually comprised of semi-remote sensors that frequently cause difficulty in reaching complex areas of a component. This study proposes to overcome that difficulty by developing embedded functional composites, so that embedding can be achieved in virtually any component part and periodically can be interrogated by a reading device. The “reinforcement rich” processed areas can then be used to record properties such as strain, temperature, and stress state, to name a few, depending on the reinforcement material. Friction stir processing was used to fabricate a magnetostrictive composite by embedding galfenol particles into a nonmagnetic aluminum matrix. The aim was to develop a composite that produces strain in response to a varying magnetic field. Reinforcements were distributed uniformly in the matrix. Magnetization curves were studied using a vibrating sample magnetometer. A simple and cost-effective setup was developed to measure the magnetostrictive strain of the composites. Important factors affecting the magnetic properties were identified and the processing route was modified to improve the magnetic response.