Olivine LiFePO4 has been produced using Fe2O3 raw material by mechanical alloying (MA) and subsequent firing. X-ray diffraction (XRD) and Mössbauer spectroscopy analysis revealed that LiFePO4 prepared by MA had a well-ordered olivine-type LiFePO4 structure with an ionic state of Fe2+ by the reduction of Fe3+ precursor. It showed a maximum discharge capacity of 160mAhg−1 at C/20 (8.5mAg−1) when cycled from 2.5 to 4.3V. Compared to the LiFePO4 prepared by conventional solid-state method, MA synthesized LiFePO4 a displayed higher charge/discharge capacity and more stable cycle life because of the improvement of the electronic conductivity. It was originated from uniformly distributed fine particles and an increased specific surface area by MA process.