Herein, the potential application of Ca(OH)(2) as an insulating layer in SMCs was investigated. Ca(OH)(2) was hydrothermally coated onto the surface of FeSiAl soft magnetic powder and heat treated to successfully prepare FeSiAl/CaSiO3<middle dot>Ca2Al2O5<middle dot>Ca(OH)(2) and FeSiAl/CaSiO3<middle dot>Ca2Al2O5<middle dot>CaO SMCs. The formation mechanism of the composite insulating layer was comprehensively examined, and the electromagnetic properties of the SMCs were adjusted by varying the quantity of Ca(OH)(2). During the hydrothermal coating process, Ca(OH)(2) would react with Si and Al to form CaSiO3 and Ca2Al2O5, affording a heterogeneous core-shell structure, wherein FeSiAl was the core, and CaSiO3<middle dot>Ca2Al2O5<middle dot>Ca(OH)(2) was the shell. After heat treatment of the coated powder, Ca(OH)(2) was decomposed into CaO, which had a higher dielectric constant. With increasing Ca(OH)(2) from 1 to 3 wt%, the composition of insulating layer changed from CaSiO3<middle dot>Ca2Al2O5 to CaSiO3<middle dot>Ca2Al2O5<middle dot>CaO, and the saturation magnetisation of the SMCs decreased and then stabilised, while resistivity and loss initially increased and then decreased. With 2 wt% of Ca(OH)(2) addition, the FeSiAl/CaSiO3<middle dot>Ca2Al2O5<middle dot>CaO SMCs exhibited the best comprehensive magnetic properties, with a saturation magnetisation of 121.78 emu/g and resistivity of 11.94 Omega<middle dot>cm. Under 30 mT and 250 kHz, the maximum permeability was 45.9 and the total loss was 803.37 kW/m(3). Hence, this method can effectively produce FeSiAl-based SMCs with stable permeability and low loss, demonstrating its considerable potential in power supply applications.