A new microemulsion system consisting of saturated Fe2+ solution/isopropanol/PVP system was used to synthesize magnetic alpha-Fe ultrafine particles by reduction reaction. Samples were characterized by X-ray diffraction (XRD) and transmission electron microscopy (TEM). Results show that there is an important relationship between particle size, particle morphology, and the volume ratio of water to isopropanol. Due to the special surface properties of nanostructural alpha-Fe, there were iron oxides outside the alpha-Fe nanoparticles; these oxides may prevent the inner alpha-Fe from being oxidized further.