This paper deals with the results of an electron diffraction investigation of the structure of soft magnetic materials which exhibit magnetic annealing. The property of heat treatment in a magnetic field has been found to depend upon the oxygen content present as an impurity and is associated with distinct diffraction phenomena. A structural model based on an interpretation of diffraction results, magnetic properties, and oxygen content is presented.The pertinent conclusions from this study are:1. The ability of soft magnetic alloys containing Fe, Co, and Ni to exhibit magnetic annealing properties is due to oxygen present as an impurity.2. An oxygen content of about 0.001% is sufficient to produce magnetic annealing with the proper heat treatment. An alloy containing only 0.0001% oxygen fails to respond to field heat treatment or is ``dead.''3. The oxygen impurity produces magnetic activity in the alloy crystal (with proper heat treatment) by condensing into the (111) planes of the crystal, thus giving rise to a stacking disorder or fault. The term ``impurity fault'' has been introduced to describe this structural irregularity.4. The oxygen impurity faults are presently thought to be aligned by magnetic annealing and are intimately connected with field heat treatment properties. If sufficient oxygen is available in the crystal, the faults thicken and organize to yield metal oxides.