Abstract Using an Fe 2O 3-containing composite anode instead of an Fe-containing composite anode in the Kratschmer-Huffman carbon arc method, carbon-coated Fe (not Fe 2O 3) nanocrystals are produced both in the soot on the reactor walls and in the cathode deposits. The encapsulates also contain a little iron carbide, but do not contain iron oxides, as identified by transmission electron microscopy ( TEM ) and X-ray diffraction (XRD). As compared with Ni 2O 3- and Co 2O 3-containing composite anodes, the action of the Fe 2O 3-containing composite anode is unique. When the Fe 2O 3 contents in the composite graphite rod for the carbon arc nanocrystal production are increased in the range 5-33 wt.%, the effect on the structure and diameter distribution of the iron nanocrystals is investigated. The diameter distribution of iron nanocrystals is about 1–30 nm. The effect of helium pressure in the range 80–680 torr on the yield of C 60/70 in carbon soot produced from the composite graphite rod has also been examined. We present a novel result about the relationship of C 60/70 yields and helium gas pressure using a composite anode differing remarkably from the result using a homogeneous graphite anode in arc discharge.