The nanocrystalline Fe70Ni12B16Si2 (at.%) alloy was prepared by mechanical alloying (MA) of elemental powders in a high-energy planetary ball mill. Phase evolution, microstructure, thermal behavior and magnetic properties were investigated. It was found that a body-centered cubic structured solid solution started to form after 25 h milling and a faced-centered cubic structure solid solution started to form after 50 h of milling; its amount increased gradually with increasing milling time. The BCC and the FCC phases coexisted after 150 h of milling, with a refined microstructure of 13 nm and a 10 nm crystallite size. The as-milled powder was annealed at 450 °C and 650 °C and then investigated by vibrating sample magnetometry (VSM). It was shown that the semi-hard magnetic properties are affected by the phase transformation on annealing. The saturation magnetization decreases after annealing at 450 °C, whereas annealing at 650 °C improves the magnetic properties of 150 h milled powders through the reduction of coercivity from 109 Oe to 70 Oe and the increase in saturation magnetization.