FePt granular films with grain size smaller than 10 nm are promising candidates for storage media used in the next generation heat-assisted magnetic recording technology. However, FePt films show degraded magnetic properties when the grain size is reduced to this scale, which cannot be explained solely by the finite size theory. In this study, we explored the structural cause of property degradation by employing advanced electron microscopy and atomistic modeling. Structural features unique to the nanostructured FePt granular films at significantly reduced grain sizes of 2∼8 nm were studied by high-resolution scanning transmission electron microscopy with geometric aberrations corrected up to the third order. Two critical structural parameters, the threshold grain size corresponding to the upper size limit of the FePt grains with zero chemical ordering and the sub-nanometer thin interfacial impurity at grain boundaries, were identified. A new atomistic model was developed to correlate these structural characteristics with key magnetic properties such as Curie temperature, saturation magnetization, magnetocrystalline anisotropy, and their grain-to-grain variation. The model shows good agreement with the experimental magnetic data and explains the gap in magnetic properties between the bulk and nanostructured FePt.