A fluidized iron powder reduction process with controlled spontaneous agglomeration in a bed of inert material has been proposed. In this process agglomerates formed from fine iron powders in the region near the bed surface sediment through the inert bed whose height is adjusted so that a sufficient residence time is provided. The effects of the iron particle size, the fluidizing gas velocity and the bed height on the segregation/sedimentation behavior of iron particles in the fluidized bed were investigated. In a fluidized bed of 409 mu m sand, iron powders-of mean size of 36 and 78 mu m segregated in the upper region of the bed as flotsam and iron agglomerates sedimented to the bottom of the bed. The operating ranges where the above concept can be established were found to be in a sufficiently wide range of bed height and gas velocity. In beds of SiC, Al2O3 and ZrO2 particles fluidized by the H-2-N-2 gas mixture, the possibility of agglomeration of a water-atomized iron powder and sedimentation of the agglomerates were confirmed experimentally. At relatively high temperatures agglomerates were irregular shaped and coarse, while at relatively low temperatures agglomerates were round and sparse.