The Mossbauer and transmission electron microscopy (TEM) analysis of Fe-powder and Fe46C54-powder blend, mechanically milled by high power ultrasonics (USM) in He environment for 20–75 hours, have been carried out. As shown, the USM results in effective grinding of initial polycrystalline iron particles up to formation of single crystalline state, dissolution of carbon in iron particles, synthesis of carbides and possibly penetration of Fe atoms into graphite. Annealing of processed Fe46C54 powder causes carbide reaction.