The physical origin of soft magnetic properties in Fe based alloy films with large magnetocrystalline anisotropy and magnetostriction are systematically examined. The relations between the microstructure of the film and soft magnetic properties are discussed for various kinds of Fe based alloy films such as Fe-N, Fe-Si-Al, Ni-Fe-Nb etc. fabricated by d.c. magnetron sputtering. Magnetic anisotropy dispersion has been analyzed based on the micromagnetic ripple theory proposed by H. Hoffmann. Analysis of dynamic differential susceptibility suggests that initial permeability is strongly related to the structure constant S, which must be reduced in order to realize high initial permeability. It has been demonstrated that the reduction of grain size and induced lattice deformation are very effective for decreasing the value of S with respect to controlling microstructure of the film. Several factors which must be taken in account for achieving high initial permeability in Fe based alloy films are proposed.