A novel carbon modified Fe–Mn–K catalyst for light olefin synthesis from CO hydrogenation was prepared by the sol–gel method. The effect of carbon contents on the structure and performance of the catalysts was investigated. With the incorporation of carbon, the catalysts showed much different morphology from that prepared by co-precipitation. At the carbon contents between 0.23 and 6.66 wt%, the catalyst particles were around 10 nm while the carbon phase was amorphous. The activity test results indicated that the catalysts (Fe/Mn/K molar ratio = 60/20/1) with carbon modification showed high conversion of CO and selectivity to light olefins with low CH4 selectivity. At the carbon content of 2.43 wt%, the total C2–C4 content in all hydrocarbons and O/P (olefin/paraffin) in the C2–C4 fraction was 49 wt% and 4.89, respectively. Furthermore, when the K content in the catalyst was reduced by half, the C2–C4 olefin yield raised from 60 to 71 g/Nm3 syngas. The formation of carbon provided a more hydrophobic surface, which inhibited the water gas shift reaction (WGSR) and caused a decrease in CO2 selectivity. The dispersion of carbon favored the formation and stabilization of small particles, and promoted the production of light olefins via suppressing the chain propagation.