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Nanostructured Fe/Ag composite films were prepared by magnetron sputtering using a single target. Correlations between the microstructure and magnetic properties, in particular the effects of cluster-size distribution in the films, are discussed. The cluster-size distribution was calculated by analyzing the width and shape of the x-ray-diffraction peaks. The average cluster size in the films increased from 42 to 295 Å and from 38 to 320 Å in the systems of 41 and 27 vol % of Fe, respectively, as the substrate temperature increased from 100 to 500 °C. The maximum magnetic coercivity, as high as 900 Oe, has been observed in the film with 27 vol % of Fe, which was prepared at a substrate temperature of 400 °C.