Nanocomposites of Fe–NiO are synthesized by the mechanical milling technique. The phase purity of the sample was checked by X-ray diffraction (XRD), which shows only lines of α-Fe and NiO. Transmission electron microscopy (TEM) measurements confirmed a homogeneous dispersion of α-Fe nanoparticles in NiO matrix. Magnetic hysteresis measurements showed an enhancement in coercivity at room temperature with increasing milling durations and presence of exchange bias field. With increasing milling durations, the exchange field is found to increase while blocking temperature decreased. Presence of defects in Fe–NiO nanocomposites ball-milled for prolonged durations is confirmed by positron annihilation lifetime spectroscopy (PALS) measurements. Mössbauer spectroscopic measurements reveal that Fe nanoparticles are in the blocked state though their size is less than the critical size for becoming single domain and superparamagnetic. This is attributed to strong exchange coupling between the ferromagnetic and antiferromagnetic moments.