Fe—Ni alloys were prepared by mechanical attrition of elemental powders in a planetary ball mill in argon atmosphere. A nonequilibrium phase diagram of Fe100−xNix, mechanically alloyed at various milling intensities, is presented. Disordered body‐centered‐cubic and/or face‐centered‐cubic supersaturated solid solutions with a two‐phase region are found. The maximum solubilities are 30 at. % Ni in Fe and 40 at. % Fe in Ni and decrease slightly with increasing milling intensity, i.e., processing temperature. Mechanically alloyed Fe—Ni is in a nanocrystalline state with an average grain size of 25–35 nm. The grain refinement is accompanied by an increase in atomic‐level strain up to about 1% root‐mean‐square. This high internal strain affects predominantly the coercivity which is at least 4 A/cm even for single‐phase alloys. The kinetics of the martensitic &ggr;→&agr;’transformation in mechanically alloyed nanocrystalline Fe—Ni are significantly modified in comparison to coarse‐grained as‐cast alloys. The nonequilibrium microstructure is assumed to hinder the growth of martensite which is confirmed by the investigation of the magnetic field‐induced martensitic transformation.