The etching characteristics of magnetic thin films of permalloy and Fe-based alloys are investigated. The thin films are fabricated by rf magnetron sputtering and the substrates used are silicon and glass. Etching is done by ion beam technique and the main process parameters investigated are beam voltage, beam current and accelerating voltage. The etch rate of the magnetic films is proportional to the beam current, but it is not directly related to the accelerating voltage and beam voltage. The dependence of etch rate on the process parameters can be explained by ion current density. It is found that the ion beam etching is effective in obtaining well-developed micro-patterns on the permalloy and Fe- based magnetic thin films.