The low-temperature alloying of Fe-Ag nanoparticles entrapped within thermally evaporated fatty acid films by a novel ion exchange technique is described. Nanoparticles of iron and silver were grown in thermally evaporated stearic acid (StA) films by sequential immersion of the film in solutions containing Fe2+ ions and Ag+ ions followed by their in situ reduction at each stage. Entrapment of Fe2+ and Ag+ ions in the StA film occurs by selective electrostatic binding with the carboxylate ions in the fatty acid matrix. Thereafter, the metal ions were reduced in situ to yield nanoparticles of Fe and Ag of ca. 35 nm diameter within the fatty acid matrix. Thermal treatment of the StA-(Fe + Ag) nanocomposite film at 200 °C resulted in the formation of an Fe-Ag alloy. Prolonged heat treatment at 250 °C resulted in the phase separation of the alloy and the re-formation of individual Fe and Ag nanoparticles. The process of Fe2+ and Ag+ ion incorporation in the StA matrix and synthesis of the Fe-Ag alloy were followed by quartz crystal microgravimetry, Fourier transform infrared spectroscopy, transmission electron microscopy and x-ray diffraction measurements.