We have investigated atomic diffusion in RF‐sputtered amorphous Gd‐Fe thin films using Auger Electron Spectroscopy (AES). Polycrystalline Co films were deposited in‐situ on amorphous Gd‐Fe films. These bilayer films were vacuum annealed to induce atomic diffusion of Co into the amorphous Gd‐Fe films. AES depth profiles were used to calculate diffusion lengths (Data)1/2where tais the annealing time, Dais the diffusion coefficient Daoexp(−Qa/KT), and Qais the activation energy. We found that Dao=10−3cm2/sec and Qa=1.3 eV suggesting that amorphous Gd‐Fe films behave like a liquid phase. Diffusion lengths of 150–250 A˚ were determined after annealing at 200–300°C for 3 hours. These results suggest that amorphous Gd‐Fe films are porous. In agreement, AES depth profiles show that amorphous Gd‐Fe films exposed to air possess an oxide surface layer 500–1000 A˚ thick. Electron diffraction studies showed that the outer halo becomes very sharp after annealing at 300°C for 3 hours. Dark‐field microscopy showed that inner halo is still due to an amorphous matrix. However, according to x‐ray microanalysis, the outer halo is associated with microcrystallization of Fe. According to our diffusion studies, such an amorphous phase separation can easily develop during sputter‐induced surface diffusion to produce perpendicular magnetic anisotropy.