The evolutions of the phase composition and the microstructure, as well as their effects on the magnetic performance, were investigated with a series of annealing processes using the prepared nanocrystalline single-phase SmCo7 alloy as the starting material. The SmCo7 (1:7H) phase is discovered to have a good single-phase stability from the room temperature up to 600 °C. A discontinuous nanograin growth takes place in nanocrystalline SmCo7 alloy, accompanied with the destabilization of the single 1:7H phase, resulting in the formation of the Sm2Co17 (2:17R) and SmCo5 (1:5H) phases, which exist in a form of the phase-transformation twins and the particulate precipitates respectively. The optimum magnetic performance is obtained in the nanocrystalline 1:7H single-phase alloys, and the maximum intrinsic coercivity 1164.54 kA/m and energy product 95.65 kJ/m3 are archived in SmCo7 alloys with the mean grain size of 33 nm and 29 nm, respectively.