A gradient coating of Fe-based alloy was manufactured with rare earths (RE) by plasma surfacing on Q235 steel substrate. The coatings were studied by using X-ray diffraction (XRD),scanning electron microscope(SEM),differential thermal analyzer (DTA ),and electron probe micro-analyzer (EPMA). The results show that the phases of the two kinds of coatings(with and without RE) both include α-Fe, Fe7C3, Fe3C, Cr2B, Fe2B and FeB. The microstructure ofF314 coating is mainly hypereutectic, the pro-phases Cr7C3 and Cr2B are loose, crassi, spiculate and contain microcracks. The brittleness of the coating is high, and the average hardness is 787 HV. When 0.8wt% RE was added into the F314 alloy, the microstructure varied from hypoeutectic to hypereutectic continuously, The hardness appears as gradient distribution with the highest value of 773 HV, meanwhile, the brittleness decreases significantly. The formation of gradient structure depends on the fallowing factors: (i) the conversion of RE. The addition of RE lowers the elements point and Fe-C eutectic temperature, thus the base metal melting acutely. (ii) the heating of plasma arc.Graded temperature results in directional solidification, thus the gradient structure forms easily. The main reasons for the hardness decrease with RE addition in the alloy are the ratio of hard phase lowering and the hardness of the hard phase decreasing.