Abstract: This study explores the potential application of calcium oxide (CaO) as an insulating layer in soft magnetic composites. To address lattice mismatch and prevent cracking, we propose introducing an FexOy transitional interlayer between the CaO insulating layer and the iron matrix. The Fe/FexOy/CaO soft magnetic composites, exhibiting superior soft magnetic properties, were successfully synthesized using surface oxidation, hydrothermal synthesis, thermal decomposition of calcium acetate, and cold-press molding techniques. We also investigated the formation mechanism of the CaO insulating layer and studied the impact of calcium acetate supplementation on the structural and electromagnetic characteristics of the composite. The incorporation of the FexOy interlayer significantly reduced lattice disparity and minimized crack formation. Concurrently, the CaO layer increased material resistivity while decreasing eddy current losses, resulting in reduced magnetic loss and enhanced permeability. By precisely adjusting the amount of calcium acetate used, we could further optimize the magnetic and electrical properties of the Fe/FexOy/CaO composite to minimize energy loss. This material design and preparation methodology presented in this research substantially improved overall magnetic properties of soft magnetic composites, providing a novel approach for advancing high-frequency soft magnetic composite research.