The magnetic properties and microstructures of a series of as-quenched and heat-treated inert gas atomized (IGA) rare-earth rich (Nd,Dy)–Fe–B particles have been investigated. Heat treatment was found to substantially improve magnetic properties, with effects most pronounced in samples with higher Dy content and higher total rare earth (RE) content. The as-quenched particles consisted of an underquenched dendritic-like structure with the majority phase RE2Fe14B, and a fine network of RE-rich material between the grains. The heat-treated particles showed a change in microstructure which correlated with magnetic property changes. Particles which showed little change in magnetic properties showed no obvious change in microstructure. Particles which showed large changes in magnetic properties showed a large change in microstructure: most of the fine network of RE-rich interdendritic material disappeared, leaving behind only a few small isolated regions. This would seem to indicate that the predominant mechanism determining coercivity in these IGA RE-rich (Nd,Dy)–Fe–B powers is nucleation of reverse domains, rather than domain wall pinning at nonmagnetic intergranular material.