The invention discloses a novel iron-based nanometer crystal magnetically soft alloy and a preparation method thereof. The molecular formula of the iron-based nanometer crystal magnetically soft alloy is FexPyCzMaCub, wherein the M in the molecular formula is one or more than one of B, Si, Al, Cr, Mn, Mo and Ge; x,y,z,a and b respectively represent atom percentage composition of each corresponding component, wherein 70<=x<=90, 1<=y<=20, 1<=z<=20, 0<=a<=10, 0.1<=b<=2, and x+y+z+a+b=100; and a microstructure is coexistence of a body-centered stand alpha-Fe nanometer crystalline phase the size of which is 5-40 nm and a rich phosphatic and carbon amorphous phase. Compared with the existing nanometer crystal magnetically soft alloy, the alloy disclosed by the invention meanwhile has the advantages of high saturation induction density, low coercive force, low iron loss and high magnetic permeability; and in addition, precious metals such as Nb, Zr, Co, Ni, Y and the like are not contained, thus the processing cost is greatly reduced and the application prospect is good.