β-FeSi2 is an ecofriendly thermoelectric material for high-temperature applications. In the present work, we demonstrate the validity of a new proposed fabrication process for composite-type thermoelectric alloys comprising a β-FeSi2 matrix and dispersed SiO2 particles (including Fe2SiO4 particles). The starting materials were single-phase α-FeSi2 alloy powder and Fe2O3 powder. We propose that the following reaction sequence occurs during the sintering process: (1) α-FeSi2 decomposes into β-FeSi2 and Si via the eutectoid reaction, (2) SiO2 is formed by the oxidation of Si, and (3) β-FeSi2 is additionally formed by the solid-phase reaction between eutectoid Si and reduced Fe that is formed by the reduction of Fe2O3. The microstructure of the composite alloys formed by the combined reactions during the sintering process was observed and characterized mainly using scanning transmission electron microscopy in conjunction with energy-dispersive X-ray spectroscopic chemical analyses and X-ray diffraction. The electrical and thermoelectric properties of the composite alloys were measured at temperatures from 300 to 1073 K. High Seebeck coefficient values were observed for n-type Co-doped composite alloys from −150 to −250 μV•K−1 and for p-type Mn-doped alloys from 200 to 500 μV•K−1. The partitioning of the Co and Mn dopants from the α-FeSi2 phase to the β-FeSi2 phase throughout the process is important for controlling the Seebeck coefficient. The electrical resistivity is lowered by the dispersed SiO2 particles that are expected to reduce the lattice thermal conductivity of the composite alloys.