Two-component Fe–Mg–O oxide system was prepared via sol-gel technique. An aqueous solution of iron nitrate was used to hydrolyze the magnesium methoxide instead of distilled water. The iron loading in a final sample was 15 wt% with respect to Fe2O3. The method was shown to provide a uniform distribution of iron oxide within MgO matrix. The sample was characterized by means of a low-temperature nitrogen adsorption and scanning electron microscopy. Reduction behavior of the sample was studied in a temperature-programmed regime using hydrogen as a reducing agent. In order to follow the possible phase transformations, the sample was examined by an in situ X-ray diffraction analysis in both reductive and oxidative atmospheres within the temperature range of 25–700 °C. It was found that after the first cycle of reduction/re-oxidation, the sample stabilizes in a novel state, and hydrogen uptake profiles of further cycles of reductive/oxidative treatment become completely reproducible. According to X-ray diffraction data, the sample consists of small particles (9 nm) of Fe3O4 phase well-dispersed within the structure of nanocrystalline MgO.