In this work, AlN nanoparticles were prepared by arc discharge method and transformer oil-based nanofluids containing different concentrations of these nanostructures were prepared and their thermal conductivities and stabilities were investigated at various temperatures. Two aluminum rods were used as the electrodes and nitrogen gas was used as the arc atmosphere. To investigate the factors that influence the size and purity of the nanoparticles, the nitrogen gas pressure and the current flowing through the electrodes were changed. Based on XRD measurements, it was observed that at the pressure of 2 atm. and current of 100 A, the highest purity phase was achieved. Scanning electron microscope (SEM) images indicated that the smallest samples were the ones that were made at a pressure of 3 atm. and arc current of 400 A and had an average particle size of about 67 nm. The band gap of nanoparticles was obtained at 5.6 eV using the Tauc method. Then, transformer oil-based nanofluids with concentrations of 0.5, 1, 2, and 4 wt.% of AlN were prepared and their thermal conductivities and stabilities were investigated. The nanofluid with 4 wt.% of AlN nanoparticles at 60 °C showed a maximum thermal conductivity enhancement of 9.4%. Nanofluids were completely stable for up to a week.