Pentacarbonyl iron is used as iron source; acetylene is used as carbon source. Ultrafine carbon-encapsulated iron(Fe@C) nanoparticles was successfully synthesized by gaseous detonation method. XRD research carried out for the characterization indicated that the main phase of the detonation product was carbon, α-Fe and γ-Fe; and TEM experiment indicated that the product was ultrafine spherical shape particles and the inner Fe core was coated by a carbon outer shell. The particles have equable size, regular sharp and no agglomeration. The average diameter of Fe core is 4.5nm; Raman spectrum analysis also confirmed that the surface of the nanoparticles was consisted of graphite and amorphous carbon. The carbon-encapsulated iron particles were treated by heat treatment at low vacuum temperature 673K, then we can find the size of iron core particles grows slightly; γ-Fe phase turn to α-Fe phase in XRD and the saturation magnetization is more than doubled after heat treatment