To meet the requirements of the induction heat treatment industry for iron-based soft magnetic composites (SMCs) with high magnetic properties and machinability, we chose polytetrafluoroethylene (PTFE) with excellent heat resistance, lubrication, electrical insulation, electrical resistivity, and mechanical toughness as an insulating coating material to improve the magnetic properties and machinability of iron-based SMCs. The PTFE insulating layer is successfully coated on the surface of the iron powder according to the SEM images. Fe/PTFE SMCs exhibit excellent magnetic properties, specifically, high saturation magnetization (193 emu/g), high effective permeability (57), and low total loss (1705 mW/cm3, 50 kHz/100 mT). In addition, the coating of PTFE insulation improves the machinability of iron-based SMCs such as cutting, milling, and drilling. This study provides an effective method to overcome the technical difficulties in preparing high magnetic and machinable iron-based SMCs with organic coatings.