In the present paper, the effects of two-step annealing on the soft magnetic properties of nanocrystalline Fe73.5Cu1Nb3Si13.5B9 melt spun ribbons were studied. The two-step annealing comprises low-temperature preannealing (first step) for an α-Fe(Si) phase nucleation in an amorphous matrix, and a subsequent high-temperature annealing (second step) for the growth of precipitated crystallites. Compared with a nanocrystalline alloy obtained by conventional one-step annealing at 550 °C for 1 h, the grain size of α-Fe（Si）crystalline phase in the Fe73.5Cu1Nb3Si13.5B9 alloy decreased greatly after it is pre-annealed at 480°C for 1 h followed by annealing at 550°C for 40 min. It has been shown that the soft magnetic properties can be significantly improved by applying two-step annealing. The decrease of grain size of α-Fe(Si) crystalline phase may result from the nucleation rate increase during the crystallization of pre-annealed.