To prepare a soft magnetic powder core, the magnetic powder surface has to be insulated by phosphating treatment. Organic chemicals such as ethanol and acetone are generally used as solvents for phosphoric acid, which may cause serious environmental problems. This work proposed deionized water as the environmentally friendly phosphating solvent for FeSiCr powder. The soft magnetic composites (SMCs) were prepared using phosphoric acid for inorganic coating and modified silicon polymer for organic coating. The effect of different phosphating solvents, including deionized water, ethanol, and acetone, on the structure and magnetic properties of SMCs were investigated. It is found that the solvent affects the phosphating solution’s stability and the phosphoric acid’s ionization. The phosphoric acid is more stable in deionized water than in ethanol and acetone. The phosphating reaction in deionized water is also more stable in deionized water, resulting in a dense phosphate coating on the particle surface. The effects of phosphoric acid concentration and temperature on the magnetic properties of FeSiCr-based SMCs were further studied. With the increase in phosphoric acid concentration and temperature, the magnetic permeability and saturation magnetization of the powder core decrease, and the core loss decreases, followed by an increase. The optimized combination of properties was obtained for the SMCs phosphated with 0.2 wt.% phosphoric acid in deionized water at 35 °C, including a high effective permeability μe of 25.7, high quality factor Q of 80.2, low core loss Pcv of 709.5 mW/cm3 measured at 0.05 T @ 100 kHz, and high withstanding voltage of 276 V, due to the formation of uniform and dense insulating coating layers. In addition, the SMCs prepared with phosphated powder show good corrosion resistance. The anti-corrosion properties of the SMCs using deionized water as a phosphating solvent are better than those using ethanol and acetone.