The change in compositional distribution of sputtered Co‐21 at. % Cr films is investigated as a function of substrate temperature using thermomagnetic analysis. As the substrate temperature increases from 50 to 400 °C, the compositional inhomogeneity progresses causing compositional separation through two stages: in stage I (substrate temperature = 50–200 °C), there occurs a drastic compositional separation into a ferromagnetic Co‐rich component (10–13 at. % Cr, 45–50 vol %) and a paramagnetic Cr‐rich component (30–40 at. % Cr, 30–40 vol %) in a hcp structure; in stage II (substrate temperature =300–400 °C), &sgr; phase precipitation seems to proceed competing with homogenization while the compositionally separated state still exists. At both stages, components with a total volume fraction of 10%–25% and compositions close to that of the film average are observed to remain. The compositional separation is recognized in compositional microstructures revealed by selective chemical etching. A two‐phase separation due to the effect of magnetic transition is discussed as a possible origin of this compositional separation.