Soft magnetic composites (SMCs) were prepared by uniformly mixing reduced Fe powder with nano-AlN particles and phenolic resin by powder metallurgy. The effects of AlN content on the microstructure, density and magnetic properties of iron-based soft magnetic composites were investigated. Scanning electron microscopy (SEM) and energy-dispersive spectroscopy (EDS) analysis showed that the sample prepared with AlN/phenolic resin insulation has a thin and uniform coating layer. Compared with the single inorganic AlN-coated sample, the AlN/phenolic resin composite coating method resulted in increased electrical resistivity and compact density, reducing the eddy current loss and effectively reducing the magnetic loss of the soft magnetic composites. The 4 wt.% AlN/phenolic resin soft magnetic composite had the lowest magnetic loss (147.67 W/kg@100 kHz,0.05 T), which was 90.4% lower than that of a single AlN-coated sample, and the permeability of the sample was stabilized at 90 in a wide range of frequencies.