In this work, fine Fe-Si powders with a nanocrystalline structure were prepared by mechanical alloying (high-energy ball milling) and subsequent heat treatment (in order to optimize their magnetic properties). Good soft magnetic properties were obtained in mechanically alloyed Fe-Si powders. The Fe 7 5 Si 2 5 powder annealed at 450 o C possessed a magnetization of 149 Am 2 /kg and a coercivity of 0.2 kA/m. The coercivity model for soft magnetic nanocrystalline materials could be well applied to the Fe-Si powders in this work. The mechanically alloyed Fe-Si possessed significantly higher magnetic permeability than that of commercially available Fe-Si powder. The permeability of the mechanically alloyed Fe 7 5 Si 2 5 powder was comparable with that of mechanically alloyed pure Fe powder. Considering of lower density and better chemical stability of Fe-Si, the mechanically alloyed Fe-Si may be interesting for soft magnetic application including magnetic shielding and electromagnetic noise suppression.