Fe‒Co alloys are the most important soft magnetic materials, which are successfully used for a wide range of applications. In this work, the magnetic properties of lanthanide-substituted (Fe0.65Co0.35)0.95(RE2O3)0.05 (RE = La, Nd, and Sm) nanoparticles, prepared by mechanical alloying, are reported. Our comprehensive studies (X-ray diffraction, Mössbauer spectroscopy, scanning electron microscopy with X-ray energy dispersive spectrometry, SQUID magnetometry and differential scanning calorimetry) have revealed different properties, depending on the dopant type. The RE2O3 addition led to a decrease in the crystallite size and to an increase in the internal microstrain. Moreover, because of the high grain fragmentation tendency of RE2O3, the cold welding between Fe–Co ductile particles was minimized, indicating a significant decrease in the average particle size. The parent Fe0.65Co0.35 alloy is known for its soft ferromagnetism. For the La-substituted sample, the magnetic energy product was significantly lower (0.450 MG.Oe) than for the parent alloy (0.608 MG.Oe), and much higher for the Sm-substituted compound (0.710 MG.Oe). The processing route presented here, seems to be cost-effective for the large-scale production of soft magnetic materials.