Carbon encapsulated magnetic nanometals have a wide prospect, but they are easily to be oxidized for their high surface activities. In this paper, the graphene encapsulated α-Fe particles were prepared by reduction of stage-2 and stage-3 FeCl₃ graphite intercalation compounds (FeCl₃-GICs) with metallic potassium. X-ray diffraction (XRD) analysis, energy dispersive X-ray spectroscopy (EDS) investigation and transmission electron microscopy (TEM) observation showed that the samples reduced from stage-2 FeCl₃-GICs contained more α-Fe nanoparticles than that from stage-3. High-resolution TEM (HRTEM) observation revealed that the nanoparticles of α-Fe were polycrystals or twins, which were real or quasi two-dimension in shape. And the space orientation of nanocrystal of α-Fe was strictly controlled by the graphene. Based on the results, a possible growth model of the graphene encapsulated α-Fe was proposed.