Ultrafine γ-Fe(C), α-Fe(C) and Fe3C particles were prepared by arc-discharge synthesis in a methane atmosphere. The phases, morphology, structure and surface layer of the particles were studied by means of X-ray diffraction (XRD), transmission electron microscopy (TEM) techniques and X-ray photoelectron spectroscopy (XPS). It was found that the mean particle size ranged from 9.8 to 12.8 nm. The surface of particles mostly consisted of a carbon layer and a little oxide. Phase transformation from γ-Fe(C) to α-Fe(C) was studied by annealing in vacuum and by differential thermal analysis and thermogravimetry (DTA–TGA) measurement. The abundance of γ-Fe(C) was determined by a magnetization measurement to be approximately 30%. Phase transformation occurred between 300 and 500 °C in a flowing argon atmosphere. The Fe3C particles oxidized to α-Fe2O3 and carbon dioxide at 610 °C or so.