A water-in-oil microemulsion method was used for the preparation of silica-coated permalloy (Ni0.80Fe0.20) nanoparticles. The particles were prepared by the reduction of their salts with sodium borohydride NaBH4 in a cationic water-in-oil (w/o) microemulsion of water/cetyltrimethyl-amonium bromide (CTAB) and n-butanol/isooctane at 25 degrees C. According to the TEM and x-ray diffraction analyses, the synthesized material was in the form of nanoparticles. The magnetization of the silica-coated nanoparticles was lower than that of the uncoated particles, reflecting the influence of the nonmagnetic silica surface layer on the magnetization.