$TiB_2$-reinforced iron matrix composite (Fe-$TiB_2$) powder was in-situ fabricated from titanium hydride ($TiH_2$) and iron boride (FeB) powders by the mechanical activation and a subsequent reaction. Phase formation of the composite powder was identified by X-ray diffraction (XRD). The morphology and phase composition were observed and measured by field emission-scanning electron microscopy (FE-SEM) and energy-dispersive X-ray spectroscopy (EDS), respectively. The results showed that $TiB_2$ particles formed in nanoscale were uniformly distributed in Fe matrix. $Fe_2B$ phase existed due to an incomplete reaction of Ti and FeB. Effect of milling process and synthesis temperature on the formation of composite were discussed.