We have shown that the structural and magnetic properties of FePt thin films were affected strongly by capped SiO2 layers prepared by ion-beam bombardment followed by post-annealing. Compared to the single fcc FePt phase in the as-deposited FePt/SiO2 bilayer (0% O2/Ar), annealing at 550 °C produced an ordered L 10 FePt phase with enhanced coercivity (∼14 kOe). Increasing the %O2/Ar during deposition of the top SiO2 layer resulted in smaller ordered FePt grains separated by grain boundaries of SiO2. We find that the (001) diffraction peak is broadened considerably with larger SiO2 deposition %O2/Ar and annealing, likely due to the induced strain. Our results indicate that FePt/SiO2 films deposited with lower %O2/Ar, the oxygen atoms created by the ion-beam bombardment act effectively to inhibit the FePt grain growth, whereas the excess oxygen atoms present during film deposition with higher %O2/Ar may induce a local strain on the FePt crystallites by occupying the interstitial sites in the FePt lattice.