Fe particles were coated with ZrO2 nanopowders using mechanical milling method combined with high temperature recovery annealing process. The effect of milling time on particle size, phase structure and magnetic properties of the core-shell structure powders was studied. Scanning electron microscopy (SEM), energy-dispersive spectroscopy (EDS) and X-ray diffraction (XRD) revealed that the surfaces of the composite powders comprised thin and uniform layers of ZrO2 insulating powders after milling. Also, the SEM images showed the morphology of micro-cellular structured compacts with cell-body of Fe particles and indicated that Fe particles were well separated and insulated by thin ZrO2 layers. The Fe/ZrO2 soft magnetic composites displayed much higher electrical resistivity, lower core loss than that of the pure Fe powder cores without ZrO2 layers at medium and high frequencies. The preparation method of ZrO2-insulated Fe powders provides a promising method to reduce the core loss and improve the magnetic properties for soft magnetic composite materials. (C) 2017 The Society of Powder Technology Japan. Published by Elsevier B.V. and The Society of Powder Technology Japan. All rights reserved.