The possibility of realizing soft magnetic properties in 40 wt% Co-Fe alloy films with large magnetostriction constants, prepared by sputtering in Ar+N2 plasma, is examined. The value of Hc along the hard-axis direction of magnetization was about 10 Oe on annealing at 500°C. The soft magnetic properties of these films are determined primarily by lattice strain rather than by a macroscopically induced uniaxial magnetic anisotropy Ku. The calculated magnetic anisotropy energy U in individual grains, taking account of the magnetoelastic energy, drastically increases with slight increases in the lattice strain. Therefore, in order to obtain excellent soft magnetic properties, lattice strain relaxation to less than 0.1% is important.