In this work, the reduced iron powders were phosphated to form ferrous phosphate insulating layer on their surface. Then the iron based soft magnetic composites (SMCs) were prepared successfully by powder metallurgy and annealing process. The presence of insulating layer decreased the eddy current loss of iron powders. Furthermore, the effect of the annealing process on magnetic performance was investigated. The appropriate annealing temperature and holding time were carried out in this work. The samples were annealed in a N2 atmosphere from 550 to 650 ℃ and kept for 10 to 30 min.According to the results, the phosphated iron based SMCs that were annealed in a N2 atmosphere at 600 ℃ for holding 15 min of holding time had the satisfying magnetic properties. It has a high resistivity (ρ) of 0.017 3 Ω·cm, a high saturated magnetic flux density (Bs) of 1.408 T, a high maximum permeability (μm) of 263, a low coercivity (Hc) of 197 A/ m and a low core loss (Ps) of 119.70 W/kg at 1 000 Hz (Bm=1 T).