Low-energy magnetic states and finite-temperature properties of Cr nanoclusters in bulk bcc Fe and Fe nanoclusters in bulk Cr are investigated using density functional theory (DFT) and the Heisenberg-Landau Hamiltonian based magnetic cluster expansion (MCE). We show, by means of noncollinear magnetic DFT calculations, that magnetic frustration caused by competing ferromagnetic and antiferromagnetic interactions either strongly reduces local magnetic moments while keeping collinearity or generates noncollinear magnetic structures. Small Cr clusters generally exhibit collinear ground states. Noncollinear magnetic configurations form in the vicinity of small Fe clusters if antiferromagnetic Fe-Cr coupling dominates over ferromagnetic Fe-Fe interactions. MCE predictions broadly agree with DFT data on the low-energy magnetic structures, and extend the DFT analysis to larger systems. Nonvanishing cluster magnetization caused by the dominance of Fe-Cr over Cr-Cr antiferromagnetic coupling is found in Cr nanoclusters using bothDFT andMCE. Temperature dependence of magnetic properties of Cr clusters is strongly influenced by the surrounding iron atoms. A Cr nanocluster remains magnetic until fairly high temperatures, close to the Curie temperature of pure Fe in the large cluster size limit. Cr-Cr magnetic moment correlations are retained at high temperatures due to the coupling of interfacial Cr atoms with the Fe environment. Variation of magnetization of Fe-Cr alloys as a function of temperature and Cr clusters size predicted by MCE is assessed against the available experimental data.