Bi3.15Nd0.85Ti3O12 ( BNdT)/CoFe2O4 ( CFO) composite ceramic powders with embedded structures were successfully prepared by sol-gel processing. Their crystallization behavior was characterized by XRD, DTA, FT-IR, and HRTEM. The magnetic and ferroelectric phases of these composite ceramic powders segregate during calcination. The CFO phase forms easily at similar to 300 degrees C, thereafter the BNdT matrix phase nucleates with grain growth at the CFO grain boundaries at temperatures >500 degrees C. The CFO phase acts as a heterogeneous nucleation point for formation of the ferroelectric BNdT phase. Furthermore, the 0.5BNdT-0.5CFO composite ceramic powders go through a ferroelectric-paraelectric phase transition at 259 degrees C, and the magnetic CFO nanoparticles ( 50-100 nm, under calcination at 600 degrees C) embedded in the ferroelectric matrix, show superior magnetic behavior ( M-max = 16.50 emu/g), comparable to pure CFO nanoparticles.