The Fe–Cr alloy system is the basis of ferritic steels, which are important structural materials for many applications, including their use in future fusion reactors. However, when exposed to elevated temperatures and radiation, the Fe–Cr system can undergo phase separation, resulting in Fe-rich (α) and Cr-rich (α’) nanoscale regions. This in turn generates the so-called “475 °C embrittlement” and modifies the magnetic properties. The correlation between the microstructural and magnetic changes is however poorly understood, which currently prevents the possibility of assessing the material in a non-destructive way by magnetometry. Here, we study the microstructural decomposition of an Fe–40Cr alloy induced by annealing at 500 °C for extensive time scales and its impact on the magnetic properties using magnetometry and advanced experimental methods, such as atom probe tomography, transmission electron microscopy (TEM), and micromagnetic simulations. Upon annealing, the alloy rapidly exhibits a spinodal decomposition morphology with a typical length scale of about 10 nm. With increasing annealing time, the hardness assessed by Vickers testing, the magnetic saturation, and the coercivity increase, which correlates with an increase in α-volume fraction and the system's heterogeneity. The magnetic domain patterns imaged by TEM and interpreted with the help of micromagnetic simulations reveal at the nanometer scale the impact of decomposition on the magnetic response of Fe–Cr.