Using spin-polarized scanning tunneling microscopy in an external magnetic field, we have observed magnetic hysteresis on a nanometer scale in an ultrathin ferromagnetic film. An array of iron nanowires, being two atomic layers thick, was grown on a stepped tungsten (110) substrate. The microscopic sources of hysteresis in this system-domain wall motion, domain creation, and annihilation-were observed with nanometer spatial resolution. A residual domain 6.5 nanometers by 5 nanometers in size has been found which is inherently stable in saturation fields. Its stability is the consequence of a 360 degrees spin rotation. With magnetic memory bit sizes approaching the superparamagnetic limit with sub-10 nanometer characteristic lengths, the understanding of the basic physical phenomena at this scale is of fundamental importance.