Well-graphitized core/shell iron/carbon nanoparticles (Fe@CNPs) were formed in toluene solutions containing Fe(CO)5-C60/70 via an novel microwave arcing process. High temperature γ-Fe phase was found to be stable at room temperature when encapsulated inside graphene shells. In the absence of C60/70, the structures of graphene shells are poor. Pre-synthesized Co nanoparticles were used as templates for the growth of graphene shells in toluene-C60/70 solutions. Via acid etching and removal of the central core Co nanoparticles, hollow carbon nanoparticles could be obtained. Further thermal annealing by focused microwave irradiation leads to merging of small core/shell metal/carbon nanoparticles into large ones, as well as conversion of body centered cubic (bcc) α-Fe to face centered cubic (fcc) γ-Fe. The possible growth mechanisms of core/shell metal/carbon nanoparticles were discussed.