In this study, the microstructure and characterization of an overlay welding layer using Fe-based composite powders are reported. The effects of the number of passes and composition of powders on the microstructure and mechanical properties are investigated in detail. The welding wire and powders are deposited twice on a stainless-steel rod using a laser overlay welding process. The microstructure and structural characterization are performed by scanning electron microscopy and X-ray diffraction. The mechanical properties of the first and second overlay layers are analyzed through the micro-Vickers-hardness tester and abrasion wear tester. In the second overlay layer, the hardness and specific wear are approximately 840 Hv and 2.0 × 10−5 mm3/Nm, respectively. It is suggested that the increase of the volume fractions of (Cr,Fe)7C3 and NbC phases in the second welding layer enhances the hardness and wear resistance.