The effects of oxygen concentration and film thickness were studied on the microstructural, electrical, and magnetic properties of Fe65Co35–O alloy films prepared by dc magnetron sputtering at room temperature. The films showed the best magnetic softness with a large saturation magnetization of 21.5 kG, low coercivities of 2.8 and 2.1 Oe in easy and hard axes, respectively, and a high resistivity of 2215 μΩ cm at an optimized condition of an oxygen gas flow ratio of 1.0% and a film thickness of 105 nm. Such an excellent magnetic softness can be attributed to grain refinement caused by the addition of very low dose of oxygen, which basically did not lead to the full formation of Fe and/or Co oxide phases with low saturation magnetizations. The microwave permeability measurement indicated that the addition of very low dose of oxygen could improve the response of real permeability to frequency. A high real permeability of 525 at frequency up to 1.2 GHz was obtained for the Fe65Co35–O films deposited at the optimized condition above.