Films of Fe0.79Ge0.21with thicknesses of 300 nm were synthesized by ion beam sputtering, and were annealed at temperatures from 200 to 550 °C. The materials were characterized by x‐ray diffractometry, Mo¨ssbauer spectrometry, vibrating sample magnetometry, ferromagnetic resonance spectrometry, and electrical resistivity measurements. The as‐prepared materials comprised chemically disordered bcc crystallites of sizes less than 20 nm, and were found to have a distribution of internal strains. Upon annealing at temperatures of 250 °C and below, there occurred strain relaxation, some evolution of short range chemical order, and an improvement in soft magnetic properties. The coercive field was a minimum for the sample annealed at 250 °C. Crystallite growth occurred at higher annealing temperatures, accompanied by a transition in several measured parameters from those of ultrafine grained materials to those typical of polycrystalline materials. This trend can be explained with the random anisotropy model. Mo¨ssbauer and magnetization measurements indicated that the Ge atoms behave as magnetic holes. The57Fe hyperfine magnetic field distribution, and its change during chemical ordering, can be calculated approximately with a model of magnetic response. The large local isomer shifts at57Fe atoms near Ge atoms suggest that a local depletion of 4sconduction electron density should be incorporated into the model.