Embedded in silicon β-FeSi2 nanocrystals (NCs) were grown on Si(111) by solid phase epitaxy of a thin iron film followed by Si molecular beam epitaxy. After solid phase epitaxy, a mixture of β-FeSi2 and ϵ-FeSi nanocrystals is formed on the surface, sometimes β and ϵ phases coexist inside one nanocrystal. During initial stage of Si molecular beam epitaxy all ϵ-FeSi transforms into β-FeSi2. β-FeSi2 nanocrystals tend to move following Si growth front. By adjusting growth condition, we manage to prevent the nanocrystals from moving and to fabricate 7-layer n-Si(111)/β-FeSi2-NCs/p+-Si silicon heterostructure with embedded β-FeSi2 NCs. An epitaxial relationship and a stress induced in the nanocrystals by silicon matrix were found to be suitable for indirect to direct band gap transition in β-FeSi2. Of the heterostructure, a n-i-p avalanche photodetector and a light-emitting diode were formed. They have shown relatively good performance: ultrabroadband photoresponse from the visible (400 nm) to short-wavelength infrared (1800 nm) ranges owing to quantum-confined Stark effect in the nanocrystals and optical emission power of up to 25 μW at 9 A/cm2 with an external quantum efficiency of 0.009% at room temperature owing to a direct fundamental transition in stressed β-FeSi2 nanocrystals.