To save energy and reduce noise in high-efficiency transformers that use grain-oriented steel (GO), iron core loss reduction and magnetic flux density improvement of the GO are necessary. However, the addition of other elements (such as Co, Ni, and Mn) to the GO, which is mainly composed of Fe and Si, to improve its magnetic performance makes it difficult to roll GO into sheets because of the resulting decrease in ductility. Therefore, we synthesized Mg1−xCoxO two-component powders via coprecipitation to form an annealing separator on GO sheets and simultaneously improve their magnetic properties. The Mg0.7Co0.3O powder, which includes nano-sized polygonal particles with high crystallinity, was manufactured under base conditions and inert heat-treatment conditions at 800 °C to facilitate the preparation of an aqueous slurry. Compared to MgO powders, the Mg0.7Co0.3O powder forms forsterite more easily because of the low activation barrier of the solid-state reaction between it and SiO2 because of Co addition. In addition, Mg0.7Co0.3O-based forsterite glass film, which was coated on the GO sheet in a reduction environment, improved the magnetic properties of the GO sheet, such as core loss and magnetic flux density, because of Co diffusion from the forsterite to the GO sheet.