Ferric iron as well as magnetite are rarely found in lunar samples, and their distribution and formation mechanisms on the Moon have not been well studied. Here, we discover sub-microscopic magnetite particles in Chang’E-5 lunar soil. Magnetite and pure metallic iron particles are embedded in oxygen-dissolved iron-sulfide grains from the Chang’E-5 samples. This mineral assemblage indicates a FeO eutectoid reaction (4FeO = Fe₃O₄ + Fe) for formation of magnetite. The iron-sulfide grains’ morphology features and the oxygen’s distribution suggest that a gas–melt phase reaction occurred during large-impact events. This could provide an effective method to form ubiquitous sub-microscopic magnetite in fine lunar soils and be a contributor to the presentation of ferric iron on the surface of the Moon. Additionally, the formation of sub-microscopic magnetite and metallic iron by eutectoid reaction may provide an alternative way for the formation of magnetic anomalies observed on the Moon.