In this study, low-loss FeSiAl soft magnetic composites (SMCs) were prepared through atomic layer deposition coating and high temperature annealing for FeSiAl ferromagnetic powder, combined with subsequent bonding, pressing and sintering processes. Microstructural analysis indicated that a thin, dense, and continuous Al2O3 coatings deposited onto the FeSiAl surfaces could withstand an annealing temperature of up to 1000 °C, and high temperature annealing for powder has been proved to improve the magnetic properties of SMCs effectively. The hysteresis loss of FeSiAl SMCs was significantly improved because the integrity of the coating layer facilitated grain growth and stress relaxation at high temperatures. Meanwhile, the coating layers with high resistivity confined eddy currents inside the powders and reduced eddy current loss. What's more, the permeability was also improved due to the relaxation of residual stresses and the reduction of structural defects. Compared with that of raw FeSiAl SMC, the permeability of the SMC prepared via powders annealing at 1000 °C increased from 69.27 to 73.48, and its core loss decreased from 261.9 to 145.7 mW/cm³ (100 mT/50 kHz). However, for the SMC annealed at 1100 °C, the eddy current losses increased sharply because of the partially decomposed Al2O3 coating. Notably, the magnetic performance (principally core loss) of the FeSiAl SMCs could be modulated by varying the annealing temperature. This study provides a novel strategy for reducing the core loss of FeSiAl SMCs through powder annealing.