This paper presents the preparation of carbon composite Fe16N2 powders, and the influence of a protective carbon coating on the yield and magnetic properties of Fe16N2. Nanoparticle precursors with and without carbon were reacted under ammonia gas flow to produce Fe16N2. X-ray diffraction indicates that the powders contain typically 50-60% Fe16N2, with the remaining phases being unreacted iron, Fe4N or Fe3N. Transmission electron microscopy demonstrates that the carbon coating is effective atnd reducing the level of sintering of Fe nanoparticles during the reduction stage prior to ammonolysis to form Fe nanoparticles. In situ TEM was used to observe loss of ordering in the nitrogen sublattice of carbon composite Fe16N2 powders in the range of 168 oC to 200 oC. Magnetic susceptibility measurements show maximum values for saturation magnetization in the range of 232 emu/g, and for coercivity near 930 Oe, for samples measured up to 2T applied field at 300K.