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This paper presents our recent Lorentz microscopy study of magnetic domain structure and its relation to the nanostructure of Co-Sm films. The magnetic domains were imaged by Foucault Lorentz mode and the corresponding nanostructure was revealed by bright field and high resolution images. The nanostructure is composed of clusters of 20 nm grown on Cr grains. Each cluster is formed by the amorphous matrix and about 5 nm crystallites distributed in the matrix. It is found that each cluster forms a magnetic grain. Such magnetic grains show uniform contrast near the magnetic domain wall, and correspond to the switching volume in magnetic reversal. The magnetic grain (about 20 nm) is much larger than the size of the crystallites (5 nm) distributed in the amorphous matrix. It is the magnetic grain size that affects the noise response when the film is used as a high density recording medium.