The mechanical alloying process has been used to prepare nanocrystalline Fe70-xCuxCo30 (x = 0, 3, 6, and 10) alloy from powder mixture. The structure and magnetic properties were investigated through powder X-ray diffraction (XRD), electron microscopy and magnetization measurements. The XRD patterns show a bcc crystal structure with lattice constant 0.2865 nm and crystallite size (D) of 15 nm evolves on 60 h milling in the case of Fe-Co alloy. But it is found that Cu speeds up the formation of bcc phase with finer microstructure (D = 7 nm for x = 10). Increase in microstrain is observed with the milling time and also with Cu concentration. The magnetic measurements show a contrasting saturation magnetization and coercivity (HC) for the case of samples having lower (x ≤ 3) and higher (x > 3) Cu content in Fe-Co alloys. These variations are explained on the basis of crystallite size and strain variations in the samples during milling. Present results indicate that a nonmagnetic inclusion enhances the soft magnetic properties due to improved microstructure, which is consistent with random anisotropy model. © 2010 Elsevier B.V. All rights reserved.