Gears are one of the most critical components in a mechanical power transmission system and in most rotating machinery. Gear teeth usually fail due to increase in load above certain limit. Therefore, it is required to use different materials for gear manufacturing. Metal matrix composites possess improved properties including high strength, high stiffness, and reduction in weight, compared with unreinforced alloy. The objective of this work is concerned with replacing metallic gear with gear of composite material of aluminium silicon carbide and fly ash so as to improve performance of machines and to have longer working life. Aluminium alloy, SiC and fly ash are used as matrix and reinforcing material. Contact stress is the key parameter in mating gear in gear design. This work represents contact stress analysis of steel and composite gear pairs using hertz theory and finite element analysis (FEA) using ANSYS. In this work, aluminium silicon carbide and fly ash is used as a gear material. Also experimental stresses are calculated using strain gauge technique. When compared, the results of both theoretical method and FEA show a good degree of agreement with experimental results. It is observed that stresses are nearly reduced by 18% by the use of composite material. Also the weight of composite material is nearly 3 times less than steel material. So the composites can be used for making power transmitting elements such as gears, which are subjected to continuous loading.