The effects of hydrogenation on the microstructure and soft magnetic properties of nanocrystalline Fe85Zr3.5Nb3.5B7Cu1 alloy were studied by XRD, magnetization measurement and impedance spectra. The nanocrystalline alloy absorbs significant quantities of hydrogen and which lead to the lattice expansion. Hydrogen absorption lead to a slightly increase of saturation magnetization, decrease of permeability and an obvious increase in the relaxation frequency. Hydrogenation can improve the soft magnetic properties of nanocrystalline soft magnetic materials in the higher frequency range. (c) 2004 Elsevier B.V. All rights reserved.