Various iron oxides have been proven to be promising anode materials for metal-ion batteries due to their natural abundance, high theoretical capacity, ease of preparation, and environmental friendliness. However, the synthesis of iron oxide-based composites requires complex approaches, especially when it comes to composites with intrinsically conductive polymers. In this work, we propose a one-step microplasma synthesis of polyaniline-coated urchin-like FeOOH nanoparticles (FeOOH/PANI) for applications as anodes in lithium-ion batteries. The material shows excellent electrochemical properties, providing an initial capacity of ca. 1600 mA∙h∙g−1 at 0.05 A∙g−1 and 900 mA∙g−1 at 1.2 A∙g−1. Further cycling led to a capacity decrease to 150 mA∙h∙g−1 by the 60th cycle, followed by a recovery that maintained the capacity at 767 mA∙h∙g−1 after 2000 cycles at 1.2 A∙g−1 and restored the full initial capacity of 1600 mA∙h∙g−1 at a low current density of 0.05 A∙g−1. Electrochemical milling—the phenomenon we confirmed via a combination of physico-chemical and electrochemical techniques—caused the material to exhibit interesting behavior. The anodes also exhibited high performance in a full cell with NMC532, which provided an energy density of 224 Wh∙kg−1, comparable to the reference cell with a graphite anode (264 Wh∙kg−1).