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The heat capacities of nanocrystalline Ni3Fe and control materials with larger crystallites were measured from 0.4300 K. The heat capacities were integrated to obtain the enthalpy, entropy, and Gibbs free energy and to quantify how these thermodynamic functions are altered by nanocrystallinity. From the phonon density of states (DOS) measured by inelastic neutron scattering, we find that the Gibbs free energy is dominated by phonons and that the larger heat capacity of the nanomaterial below 100 K is attributable to its enhanced phonon DOS at low energies. Besides electronic and magnetic contributions, the nanocrystalline material has an additional contribution at higher temperatures, consistent with phonon anharmonicity. The nanocrystalline material shows a stronger increase with temperature of both the enthalpy and entropy compared to the bulk sample. Its entropy exceeds that of the bulk material by 0.4 kB/atom at 300 K. This is insufficient to overcome the enthalpy of grain boundaries and defects in the nanocrystalline material, making it thermodynamically unstable with respect to the bulk control material.