This study demonstrates the improvement of core loss through the reduction of eddy current loss in soft magnetic composites (SMCs) composed of TiO₂-coated Fe powder and epoxy resin. A thin and uniform TiO₂ insulating layer was successfully deposited on the surface of Fe powder via a sol-gel process, employing titanium (IV) butoxide (TBOT) as the precursor. Scanning transmission electron microscopy and energy-dispersive X-ray spectroscopy analyses confirmed the formation of a core/shell Fe/TiO₂ structure, with a coating thickness of several tens of nanometers. Increasing the TBOT concentration and coating duration time led to an improved quality factor (Q factor) and a shift of the maximum Q factor values to higher frequency regions. Notably, the permeability was decreased slightly from 14.2 to 13.4, but the core loss, measured at various AC frequencies under 20 mT and then separated into hysteresis loss and eddy current loss at 1 MHz, was significantly reduced from 573 to 435 kW/m³ when the Fe powder was coated with TiO₂ using a 2.5 wt.% TBOT solution for 8 h. This reduction in core loss is attributed to the effective suppression of inter-particle eddy currents by the TiO₂ insulation layer.