Ag(3 nm)/Fe(35 nm)/Ag(3 nm) nanogranular films were fabricated by magnetron sputtering system onto glass substrates and subsequently annealed at different temperature. The microstructure and magnetic properties of Ag/Fe/Ag films were investigated as the annealed temperature increases from room temperature to 500 °C. The XRD patterns indicate that annealing disposal does not change crystal structure of the films. The SPM was used to get the morphology and magnetic domain structures, the SPM results reveal that the annealed temperature has a great effect on the average grain size. The VSM results show that out-of-plane coercivity reaches maximum about 3.3 kOe after annealed at 500 °C. The result of δM plot indicates that the intergranular interactions are mainly of magnetostatic interaction. It concludes that the reduction of exchange interaction and the enhancement of coercivity, which maybe result from the nonmagnetic silver atoms, diffuse into the grain boundaries of magnetic grains during annealing.