Composites of tungsten carbide (WC) and stainless steel (SS) have been produced through an innovative powder coating technique using sputtering. These composites showed remarkable mechanical properties after vacuum sintering, in spite of significant amounts of brittle eta-phase, (M,W)6C. The formation of eta-phase is almost inevitable, because it is thermodynamically favoured for stoichiometric C in the WC-SS system and accelerated in the SS coated WC particles, due to the reduced diffusion distances between WC and SS and the nanocrystalline character of the metallic coating. Surprisingly, the mechanical properties are not seriously affected by the eta-phase. In fact, relatively tough and harder materials have been obtained compared to similar compositions of WC-Co. In order to understand the microscopic reason for the reported mechanical strength, in-depth structural analysis of grain boundaries and interfaces was performed by electron microscopy.