Iron oxide derivatives are promising materials for large-scale use as anode materials, owing to their natural abundance, inexpensiveness, and high theoretical capacity. Here, we synthesized amorphous urchin-like FeOOH nanoparticles and their graphite composite (FeOOH/Gr) in a one-step atmospheric plasma-assisted procedure and employed it in anode materials for Li-ion batteries. The obtained FeOOH nanoparticles are up to 300 nm in diameter with a needle thickness of about (3–10) nm, while FeOOH/Gr composite consists of graphite sheets covered with FeOOH needles. The FeOOH and FeOOH/Gr materials show excellent electrochemical performance as anode materials, with 633 mAh g−1 and 740 mAh g−1 at 0.3 A g−1 after 500 cycles, 353 mAh g−1 and 542 mAh g−1 at 1.2 A g−1 after 2000 cycles, respectively. By analyzing the state of the material at various stages of their life, we identify electrochemical milling as the performance-boosting process responsible for the 277% specific capacity increase during charge-discharge cycling after 50 cycles.