Abstract: To explore the application potential of calcium oxide (CaO) as the insulating layer in soft magnetic composites, a strategy of introducing Fe_xO_y as the intermediate transition layer between the CaO insulating layer and the iron matrix was proposed to alleviate the lattice mismatch and crack formation between the iron powder matrix and the CaO insulating layer. Using the reduced iron powders as the raw materials, the excellent Fe/Fe_xO_y/CaO soft magnetic composites were successfully prepared by surface oxidation, hydrothermal synthesis, and thermal decomposition of (CH₃COO)₂Ca combined with cold pressing forming. The formation mechanism of the CaO insulating layer was deeply studied, and the influence of calcium acetate addition amount on the structure and electromagnetic properties of the Fe/Fe_xO_y/CaO soft magnetic composites was further explored. It is found that, the introduction of the Fe_xO_y intermediate layer effectively alleviates the lattice mismatch between the iron powder matrix and the CaO insulating layer, and significantly reduces the formation of cracks. At the same time, the CaO insulating layer effectively increases the resistivity and reduces the eddy current losses, thereby achieving lower magnetic losses and higher magnetic permeability. By precisely controlling the addition amount of calcium acetate, the magnetic and electrical properties of the Fe/Fe_xO_y/CaO soft magnetic composites can be further optimized, achieving the goal of reducing energy loss.