Self-assembled α-FeSi(2) nanoislands were formed using solid-phase epitaxy of low (~1.2 ML) and high (~21 ML) Fe coverages onto vicinal Si(111) surfaces followed by thermal annealing. At a resulting low Fe-covered Si(111) surface, we observed in situ, by real-time scanning tunneling microscopy and surface electron diffraction, the entire sequence of Fe-silicide formation and transformation from the initially two-dimensional (2 × 2)-reconstructed layer at 300 °C into (2 × 2)-reconstructed nanoislands decorating the vicinal step-bunch edges in a self-ordered fashion at higher temperatures. In contrast, the silicide nanoislands at a high Fe-covered surface were noticeably larger, more three-dimensional, and randomly distributed all over the surface. Ex situ x-ray photoelectron spectroscopy and high-resolution transmission electron microscopy indicated the formation of an α-FeSi(2) island phase, in an α-FeSi(2){112} // Si{111} orientation. Superconducting quantum interference device magnetometry showed considerable superparamagnetism, with ~1.9 μ(B)/Fe atom at 4 K for the low Fe-coverage, indicating stronger ferromagnetic coupling of individual magnetic moments, as compared to high Fe-coverage, where the calculated moments were only ~0.8 μ(B)/Fe atom. Such anomalous magnetic behavior, particularly for the low Fe-coverage case, is radically different from the non-magnetic bulk α-FeSi(2) phase, and may open new pathways to high-density magnetic memory storage devices.