In the quest for glass materials with high nonlinearity and strong magnetism to meet the demands of advancing technology, magnetic nanocrystal (NC) doping emerges as a promising approach. The paper investigates the phase transition from KBiFe2O5 to Bi2Fe4O9 and Fe3O4 NCs within a TeO2–Bi2O3–B2O3 glass matrix. The novelty of this study lies in leveraging the coexistence of multiple phases to amplify both the polarization and magnetic moment of glass. Various techniques, including X-ray diffraction, transition transmission electron microscopy, X-ray photoelectron spectroscopy, Mössbauer spectroscopy, and vibrational sample magnetometer were employed to analyze the impact of NCs content and heat treatment temperature on crystallization, structure modification, and properties. KBiFe2O5 NCs doping induces changes in crystal phases and modifies the glass network structure by forming multi-valence states and altering coordination numbers, such as FeO4→FeO6, TeO4→TeO3, and BO4→BO3. Concurrently, appropriate temperature conditions result in reduced NC size, preserving glass transparency and thermal stability. Spinel Fe3O4 NCs formation at higher temperatures enhances magnetic behavior. A glass sample containing 1 mol% KBiFe2O5 NCs, heat-treated at 410 °C, exhibits a narrow bandgap (Eg) of 1.82 eV, high nonlinear parameters (α3 = 3.98 × 10−10 m/W, χ(3) = 8.65 × 10−11 esu), and a low limiting threshold (1.01 × 1012 W/m2). Additionally, owing to the incorporation of high spin states and active magnetic exchange interactions, the same glass demonstrates robust ferromagnetic behavior (Ms = 2.3 emu/g and Hc = 850 G). The approach developed in this study has been demonstrated to be highly effective in producing transparent glass with promising nonlinearity and magnetic performance suitable for photonics applications.