Influence of Y₂O₃ nanoparticles on sintered iron structure and microhardness is investigated. Ferrite grain growth is shown to be slowed down by the clusters which cause altering the grain shape from needle-like to equiaxial (with lower specific surface). Yttrium oxide particles resulted microhardness increasing to 3.6 GPa at 1 % of second phase content. The fact is explained by retardation of dislocations on disperse particles by the Orowan mechanism.