Ultrafine gamma-Fe(C), alpha-Fe(C) and Fe3C particles were prepared by arc-discharge synthesis in a methane atmosphere. The phases, morphology, structure and surface layer of the particles were studied by means of X-ray diffraction (XRD), transmission electron microscopy (TEM) techniques and X-ray photoelectron spectroscopy (XPS). It was found that the mean particle size ranged from 9.8 to 12.8 nm. The surface of particles mostly consisted of a carbon layer and a little oxide. Phase transformation from gamma-Fe(C) to alpha-Fe(C) was studied by annealing in vacuum and by differential thermal analysis and thermogravimetry (DTA-TGA) measurement. The abundance of gamma-Fe( C) was determined by a magnetization measurement to be approximately 30%. Phase transformation occurred between 300 and 500 degrees C in a flowing argon atmosphere. The Fe3C particles oxidized to alpha-Fe2O3 and carbon dioxide at 610 degrees C or so.