The effect of Y2O3 on the microstructure and properties of the Fe-Al-Si-B cladding by plasma transferred Arc was investigated. Fe-Al-Si-B in situ composite coating was prepared with plasma arc cladding on Q235 steel substrate. Moreover, rare earth oxide Y2O3 powder was added to the cladding powder in order to improve the microstructure and properties of the coating. The microstructure, phase constituent, microhardness and wear property of the coating were examined by optical microscope (OM), scanning electron microscopy (SEM), X-ray diffraction (XRD), micro hardness tester, friction and wear tester. The result indicated that the addition of Y2O3 can purify the grain boundaries and homogenize the inclusions, thus the shape and distribution of the inclusions were improved significantly. Furthermore, A dense, uniform, defect-free and significantly refined coating was then formed. When the content of Y2O3 reached 0.9%, the hardness of the coating reached 510HV, and the optimum wear resistance was obtained.