Magnetic property enhancement of alnico, a rare-earth free permanent magnet, is highly dependent on both the initial microstructure and the evolution of the spinodal decomposition (SD) inside each grain during the heat treatment process. The size, shape and distribution of the magnetic FeCo-rich (α1) phase embedded in continuous non-magnetic AlNi-rich (α2) phase as well as a minor Cu-enriched phase residing in between are shown to be crucial in controlling coercivity. Phase and magnetic domain morphology in a commercial alnico 9 alloy was studied using a combination of structural characterization techniques, including scanning electron microscopy, electron backscatter diffraction, aberration-corrected scanning transmission electron microscopy and Lorentz microscopy. Our results showed that casting created structural nonuniformity and defects, such as porosity, TiS2 precipitates and grain misorientation, are heterogeneously distributed, with the center section having the best crystallographic orientation and minimal defects. The optimal spinodal is a “mosaic structure”, composed of rod-shape α1 phase with {1 1 0} or {1 0 0} planar faceting and diameter of ∼30–45 nm. There is also a Cu-enriched phase residing at the corners of two 〈1 1 0〉 facets of the α1 phase. It was observed that grain boundary phase reverse magnetization direction at lower external magnetic field compared to the SD region inside the grain. Improving grain orientation uniformity, reducing detrimental grain boundary phase volume fraction, and the branching of the α1 rods, as well as their diameter, are promising routes to improve energy product of alnico.