Nanocrystalline iron oxide powders were prepared by an inert gas condensation technique under various oxygen partial pressures. The as-prepared nanocrystalline iron oxide powders were further modified by electroless nickel plating. The as-prepared and modified nanocrystalline powders were characterized by X-ray diffraction, transmission electron microscopy, and synchrotron X-ray absorption techniques. In addition, magnetic properties of the iron oxide nanoparticles before and after electroless nickel plating were evaluated by vibrating sample magnetometer. The experimental results show that the as-prepared nanocrystalline iron oxide powders exhibited a mixture of iron and γ-Fe2O3 phases. TEM observations revealed that oxidation started from the surface of the gas-condensed iron nanoparticles. The amount of iron oxide increased with increasing oxygen partial pressure and was confirmed by synchrotron x-ray absorption examination. A decrease in saturated magnetization and coercivity of the nanocrystalline iron oxide powders was observed after electroless nickel plating.