Fe-based nanocrystalline alloys have high magnetic flux density and low loss. Therefore, in this study, the magnetic domain structure of the ball-milled magnetic powders of these nanocrystalline alloys was observed using a Kerr effect microscope. The effect of strain removal heat treatment on the magnetic properties of the powder was also investigated by observing and comparing the magnetic domain structure of the milled powder before and after heat treatment during the preparation process of the nanocrystalline-milled powder. Our findings showed that the strain removal heat treatment changed the size and shape of the magnetic domains to a simple structure. In addition, the domain wall motion was found to be sensitive to the magnetic field, resulting in soft magnetic properties.