Functional nanocrystalline metallic iron powder is produced by the method of electrodischarge in the low oxygen environment of water. In order to obtain superparamagnetic iron oxide Fe3O4, the manufacturing Fe particles were oxidized in the oxygen-rich water to continue oxidation process. Besides, the nanocrystalline Fe particle will be oxidized at temperatures of 200 degrees C, 250 degrees C, 300 degrees C, 350 degrees C, 400 degrees C, 500 degrees C and 600 degrees C for 1 h in air to produce iron oxide alpha-Fe2O3. The X-ray diffraction, SEM and transmission electron microscope (TEM) were used to analyze the crystal structure and the powder morphologies. The results showed that pure Fe and FeO with a pretty narrow particle size distribution ranges from 1 nm to 10 nm were obtained by the method of electro-discharge. After oxygen-rich oxidation treatment the gamma-Fe2O3 and Fe3O4 were obtained at room temperature in 10 days. Thereafter, no more transformation was found in water environment. This result proves that Fe3O4 can be a stable superparamagnetic iron oxide. However, for the Fe particles heat-treated at temperatures of 200 to 600 degrees C, alpha-Fe2O3 was formed at temperatures above 300 degrees C for 1 h treating time. Further application studies of this material will be presented in our future research works.