The nano-sized Fe powders were prepared by plasma arc discharge (PAD) process using pure Fe rod. The microstructure of the prepared nanopowders was evaluated and the effect of hydrogen gas in the chamber atmosphere was investigated. In addition, the sintering behavior of nanosized Fe powders was analyzed and compared with those of conventional micron powders. The prepared Fe nanopowders had nearly spherical shapes and consisted of metallic core and oxide shell structures. In PAD nanopowder sintering, the higher volume shrinkage at low sintering temperature was observed due to the reduction of surface oxide. The PAD nanopowders showed 6 times higher densification rate and more significant isotropic shrinkage behavior than those of micron sized Fe powders.