Experimental studies were carried out on a direct production of Fe–RE (RE=Nd, Sm) and Co–RE alloys from the rare earth oxides by a reduction-diffusion (R-D) method. In the R-D process, a rare earth oxide is reduced by calcium between 1173 and 1473 K in the presence of iron or cobalt particles and the reduced rare earth diffuses into the iron or cobalt particles to form an alloy directly. The feasibility, reaction mechanism and characteristics of the R-D process are discussed with the experimental results. Part of the work was devoted to ascertain the phase relation in the Fe–Nd binary system. It is concluded that a compound phase, Fe₂Nd, does not exist in the temperature range of 773–1373 K under one atmospheric pressure.