Abstract: The invention relates to a method for the continuous reduction and soft annealing of water atomized iron powder which is conducted in the form of a loose powder layer through an indirectly heated treatment chamber with a heating zone, a reduction zone, and a cooling zone. For increasing the throughput while reducing the energy and reduction agent required, it is proposed that the powder layer is revolved during the travel through the treatment chamber with continuous mixing at least in the reduction zone, wherein the temperature is 800.degree.-950.degree. C. and that, for-controlling the dewpoint of the furnace atmosphere, fresh reduction gas is permanently introduced directly into the reduction zone.