The reaction mechanism of silicon and iron composite powders was clarified during the fabrication of high silicon iron sheet with the Si-content of 6.5wt% by Direct Powder Rolling (DPR) technique. The changes of phase composition and structure evolvement were mainly studied. It is found that a local graded structure, Fe-Fe(Si)-Fe3Si(Si)-Si, forms when sintering at 950-1000oC, which plays an important role in the DPR process. Fe3Si(Si) phase keeps higher content of Si, and Fe(Si) phase remains the state with much lower Si-content, thus provides good mechanical proprieties of rolling and cutting. Then, the subsequent sintering at about 1200oC improves the density and makes the distribution of Si homogeneous in the final high silicon iron sheets.