MA has been applied to the Fe–Si system near the composition FeSi₂ starting from elemental powders using a horizontal ball mill. Powders were examined by means of XRD and DSC. After substantially long time milling, the pre-mixed powder of nominal composition Fe₃₀Si₇₀ was found to transform to a homogeneous β-FeSi₂ phase in the as milled condition. The appropriate milling time of a powder for sintering was considered to be 720 ks. At this stage the powder consists of very fine Fe and Si crystals in the as milled condition. This transforms into a homogeneous β phase with an exothermic reaction at around 720 K. The transformation rate from (α+ε) to β in the MA powder was found to be faster than that in the specimen prepared from an eutectic alloy ingot. Specimens prepared by hot pressing from MA powder showed smaller grain size and lower thermal conductivity than those prepared by ingot metallurgy. The p-type thermoelectric properties were measured for β-FeSi₂ hot-press sintered specimens doped with both Al and Mn. Due to a small grain size, the specimen prepared from the MA powder showed a higher figure of merit and hence is, higher in conversion efficiency than that prepared by ingot metallurgy. The sequence of phase formation by mechanical alloying and post-milling annealing is considered. The effects of grain size on the thermal conductivity and Seebeck potential are discussed.