Multiwalled carbon nanotubes synthesized directly on austenitic stainless steel result in being filled with pure iron nanoparticles. X-ray diffraction shows that the nanoparticles are either in the c- or a-phase, although iron in the original alloy is in c-phase because of the presence of nickel. This phase transformation is due to the selective extraction of iron, performed by carbon nanotubes during their growth. A high coercivity of iron-filled carbon nanotubes is measured although the starting steel is paramagnetic. The presence of the a-phase, the magnetic anisotropy and the single domain character of the Fe nanoparticles explain their magnetic behavior.