MgO based nanocomposite powder including ferromagnetic iron particle dispersions, which can be available for the magnetic and catalytic applications, was fabricated by the spray pyrolysis process using ultra-sonic atomizer and reduction processes. Liquid source was prepared from iron (Fe)-nitrate, as a source of Fe nano-dispersion, and magnesium (Mg)-nitrate, as a source of MgO materials, with pure water solvent. After the chamber were heated to given temperatures (500~), the mist of liquid droplets generated by ultrasonic atomizer carried into the chamber by a carrier gas of air, and the ist was decomposed into Fe-oxide and MgO nano-powder. The obtained powders were reduced by hydrogen atmosphere at 600~. The reduction behavior was investigated by thermal gravity and hygrometry. After reduction, the aggregated sub-micron Fe/MgO powders were obtained, and each aggregated powder composed of nano-sized Fe/MgO materials. By the difference of the chamber temperature, the particle size of Fe and MgO was changed in a few 10 nm levels. Also, the nano-porous Fe-MgO sub-micron powders were obtained. Through this preparation process and the evaluation of phase and microstructure, it was concluded that the Fe/MgO nanocomposite powders with high surface area and the higher coercive force were successfully fabricated.