Ultrafine hematite powder was reduced to produce ultrafine iron powder in a 50%Ar–50%H 2 atmosphere at 450–550°C in a fluidized bed reactor. The ultrafine hematite powder shows the typical agglomerating fluidization behavior with large agglomerates fluidized at the bottom of the bed and small agglomerates fluidized at the upper part of the bed. It was found that defluidization occurred even at the low temperature of 450°C with low metallization rate. Defluidization was attributed mainly to the sintering of the newly formed iron particles. Granuation was employed to improve the fluidization quality and to tackle the defluidization problem, where granules fluidized like a Geldart's group A powder. Granulation was found to effectively reduce defluidization during reduction, without however sacrificing reduction speed. The as-reduced iron powders from both the ultrafine and the granulated hematite exhibited excellent sintering activity, that is, fast sintering at temperature of as low as ∼580°C, which is much superior as compared to that of nano/ultrafine iron powders made by other processes.