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The structure and magnetic properties of boron-oxide-encapsulated magnetic nanocapsules fabricated by arc discharge in diborane (B2H6) atmosphere have been investigated. The structure of boron-oxide-coated Fe(B) nanocapsules is different from that of carbon-coated nanocapsules. In contrast to carbon-coated nanocapsules consisting of a crystalline shell of graphite and a core of alpha -Fe and/or Fe3C, boron-oxide-coated Fe nanocapsules show an amorphous surface layer and a core of alpha -Fe [and alpha -Fe(B) solid solution], gamma -Fe, FeB. and/or Fe3B phases. The loop shift in the hysteresis loop indicates the existence of the exchange bias between ferromagnetic and antiferromagnetic components at room temperature. The Fe3O4 phase contributes to the exchange bias as antiferromagnetic components. A very wide energy barrier distribution exists in the Fe(B) nanocapsules.