This paper describes the development of spherical iron-based composite powder with carried alumina abrasive grains made by a plasma spray technique. Carbonyl iron powder (7.2 μm average size) and alumina abrasive grains (0.3 μm average size) are sprayed into the plasma flame from the respective nozzles simultaneously, or their mechanical mixture is directly plasma-sprayed. In case of the composite powder obtained by the direct spray method, the alumina abrasives are well carried on the carbonyl iron particles. However, a plasma current of more than 100 A causes melting and vaporizing of the alumina abrasives;, consequently the carbonyl iron and alumina abrasives are separated. The magnetic abrasive experiments with the composite powder developed are made for SUS304 stainless steel plate, and the result shows that the developed composite powder has high potential abrasive performance.