In this work, the NiTi alloy was oxynitrided in a fluidized bed reactor to attain an in-situ TiN-TiO2 protective composite layer. Samples were treated at 540 ± 10 °C for various holding times ranging between 0 h and 8 h. Microstructural evolution on the surface was analyzed by scanning electron microscopy, X-ray diffraction, hardness test, electrochemical behavior, Ni ion release, and bioactivity. Quantitative phase analysis from X-ray diffraction pattern of the treated sample for 8 h showed that TiN (71.3%) and TiO2 (23.0%) were dominant phases on surface. Hardness results revealed as the oxynitriding time increased from 0 h to 8 h, hardness values increased from 263.4 HV0.1 to 1227.4 HV0.1. Scanning electron microscopy observation and energy dispersive X-ray spectroscopy mapping micrographs showed that the grown of TiN with dendritic branches was hindered by Ni-rich regions. Electrochemical measurements using polarization and electrochemical impedance spectroscopy analysis revealed corrosion resistance of the oxynitrided samples was increased by ~170% from 173.3 kΩ cm2 for the bare NiTi alloy to 473.1 kΩ cm2 for the treated NiTi sample for 8 h. It was found that concentration of the released Ni ions decreased from 0.070 (bare NiTi) mg/l to 0.028 mg/l (treated for 8 h) after oxynitriding treatment. Enhanced biocompatibility of the surface treated sample for 8 h was explained by formation of thick and homogenous TiN-TiO2 composite layer. Finally, bioactive behavior of the oxynitrided samples were studied using simulated body fluid.