This study proposes the thermal decomposition of salt compounds and doping of carbonyl iron powders (CIPs) to optimize the preparation of an insulating layer through the solid-phase interface reaction. First, (Fe–Si–Cr + CIPs)/ZnSO4 composite powders were synthesized using the hydrothermal method and (Fe–Si–Cr + CIPs)/ZnO·SiO2·Cr2O3 SMCs with a ZnO·SiO2·Cr2O3 composite insulation layer were prepared through heat treatment and cold pressing. The effect of the CIP doping content on the microstructure and magnetic properties of the (Fe–Si–Cr + CIPs)/ZnO·SiO2·Cr2O3 SMCs were then investigated. During the heat treatment, ZnSO4 decomposed into solid ZnO and gaseous SO2 and O2. The O2 drives the solid-phase reaction, prompting the migration of nonmagnetic Si and Cr atoms from the interior of the Fe–Si–Cr soft magnetic powder to the surface insulation layer, finally forming the ZnO·SiO2·Cr2O3 insulation layer. The doped CIPs also show good plasticity during the coating process, combining with the coating layer to fill the internal pores of SMCs. Moreover, as the particles are small with a high surface area, they increase the number of reaction sites for ZnSO4 decomposition and facilitate the growth of the composite insulation layer, promoting its uniform distribution on the surfaces of the soft magnetic powders and CIPs. The lattice mismatch between the insulation layer and soft magnetic powder is reduced while the magnetic-phase content is increased, allowing the effective doping of CIPs sin the insulation layer. The magnetic properties of SMCs can be precisely regulated by changing the doping amount of CIPs. Unlike other insulating layer–preparation strategies based on the interfacial solid-phase reaction, the proposed method exploits the high plasticity and specific surface area of CIPs and removes the lattice mismatch between the insulation layer and soft magnetic powder.