Carbon-encapsulated Fe nanoparticles have been successfully synthesized by a two-step procedure method of hydrothermal and subsequent thermal reduction process. The introduction of hydrogen atmosphere helps to obtain pure α-Fe phase and the lower annealing temperature (at 550°C). The morphological characterization indicates that the nanoparticle presents a quasi-spherical shaped, core–shell structure with diameter ranged from 10 to 20nm and a carbon shell of about 4nm. The results of X-ray diffraction and Raman spectrum demonstrate that carbon in the as-synthesized product is in amorphous phase. Magnetic measurements reveal the ferromagnetic behavior of the product.