Fine WC powder of approximately 1 μm size was employed as a convenient source of tungsten and carbon in the laser surface alloying of AISI 316 stainless steel for improving the cavitation erosion resistance. A slurry containing WC powder was preplaced on the substrate by pasting and processed with a high-power CW Nd:YAG laser to achieve surface alloying. The composition and microstructure of the alloyed layer and the phases formed were investigated by energy-dispersive X-ray spectroscopy, optical microscopy, scanning electron microscopy, and X-ray diffractometry, respectively. The cavitation erosion behavior of the laser surface-alloyed samples in 3.5% NaCl solution was studied with a vibratory cavitation erosion tester. The microhardness of the alloyed layer increases with the total W content in the layer. By employing proper processing parameters, an alloyed layer that is hard but not too brittle can be formed, with a cavitation erosion resistance that may reach more than 30 times that of the asreceived 316. The improvement in cavitation erosion resistance may be attributed to the increase of W in solid solution and to the precipitation of dendritic carbides, both resulting from the dissociation of the fine WC powder during laser processing.