As the application scenarios of soft magnetic composites (SMCs) tend to be high frequency, reducing their high-frequency core loss (Pcv) and improve the heat-sinking capability to avoiding thermal failure of electronic system are still greatly challenging. In present work, we successfully designed and prepared novel ZnO insulating layers on the surface of FeBSiPCNbCu nanocrystalline powders and discussed their growth processes. In addition, we investigated the effects of the ZnO insulating layers on the magnetic properties and heat-sinking capability of the FeBSiPCNbCu nanocrystalline magnetic powder cores (NMPCs) and explored the related mechanisms. The experimental results show that the hydrolysis of 1.75 wt% zinc acetate dihydrate under the coupling of 1 wt% polyvinylpyrrolidone forms uniform and thin ZnO insulating layers on the powders surface. The FeBSiPCNbCu@ZnO NMPCs annealed at 510 °C for 60 min exhibit excellent magnetic properties and superior heat-sinking capability with a low core loss of 698.4 mW/cm3 (20 mT, 2 MHz), high DC bias permeability of 68.3% (100 Oe) and heat conductivity coefficient of 2.22 W/(m•K) as compared with those of 859.8 mW/cm3, 57.1% and 1.86 W/(m•K), respectively, for the NMPCs without ZnO insulating layer.