In this work, an attempt has been made to reveal critical factors dominating the crystallization and soft magnetic properties of Fe81SixB10P8−xCu1 (x = 0, 2, 4, 6 and 8) alloys. Both melt spun and annealed alloys are characterized by differential scanning calorimetry, X-ray diffractometry, Mössbauer spectroscopy, transmission electron microscopy, positron annihilation lifetime spectroscopy and magnetometry. The changes in magnetic interaction between Fe atoms and chemical homogeneity can well explain the variation of magnetic properties of Fe81SixB10P8−xCu1 amorphous alloys. The density of nucleation sites in the amorphous precursors decreases in the substitution of P by Si. Meanwhile, the precipitated nanograins gradually coarsen, but the inhibiting effect of P on grain growth diminishes causing the increase of the crystallinity. Moreover, various site occupancies of Si are observed in the nanocrystallites and the Si occupancy in bcc Fe decreases the average magnetic moment of nanograins. Without sacrificing amorphous forming ability, we can obtain FeSiBPCu nanocrystalline alloy with excellent soft magnetic properties by optimizing the content of Si and P in the amorphous precursors.