Ceramic materials consisting of magnetic particles (MgFe2O4) in an insulating matrix (MgO) with a nanocrystalline structure have been produced by mechanical alloying and sintering techniques. Initial mixtures of MgO and Fe2O3 were milled in high-energy mills and characterized after different milling times. Increasing amounts of magnesiowustite (MgxFe1-xO) form as a function of milling time. Sintering was performed from 673 to 1273 K in vacuum. Sintering at low temperatures allows retention of nanosized grains containing a fine dispersion of magnetic particles in a magnesiowustite matrix. Measurement of magnetic properties is used to determine both the nature of the developed phases and the grain sizes.