The effect of annealing on the microstructure and magnetostriction of Tb0.3Dy0.7Fey for 1.4 less than or equal to y less than or equal to 1.7 was investigated. As the y value decreased, the volume fraction of the eutectic phase increased and this phase leaked out from a sample during annealing above the eutectic temperature, which significantly changed the magnetostrictive properties. We compare the effects of leakage of the eutectic phase and annealing on the magnetostriction and discuss the reasons. (C) 2004 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim.