Mössbauer spectroscopy was used to determine quantitative phase changes of the anisotropic FeAlC alloy after applying different heat treatments. These results are compared with X-ray diffraction investigations and quantitative transmission electron microscope microstructural analysis. The magnetic properties of the oil-quenched, tempered alloy with a volume fraction of the K-carbide, v, of 0.67 (H c = 31.8 kA m −1 , B r = 0.8 T, (BH) max = 7.96 kJ m −3 ) are superior to the properties of the water-quenched, tempered magnet with a K-carbide content of 0.23 (H c = 20.3 kA m −1 , B r = 0.28T, (BH) max = 2.07 kJ m −3 ). It is shown that the transformation of retained austenite into ferrite and K-carbide is responsible for the improvement in the magnetic properties.