Nanosized particles of Fe2O3 with a narrow size distribution (5–20 nm) were prepared by heat treatment of powder precipitates obtained from a nonaqueous homogeneous solution of stearic acid and iron(III) nitrate. Differential scanning calorimetric studies and infrared spectroscopic studies on the as prepared powder precipitates revealed the presence of Fe–O-stearate intermediate/complex, which subsequently transformed to γ- Fe2O3 when heat treated at 200 oC for 30 min. The crystallographic γ→α-Fe2O3 transformation and the particle size distribution of the nanosized particles were studied with the help of X-ray diffraction and small angle X-ray scattering technique. Crystallographic γ→α transformation of nanosized Fe2O3 has been found to occur at 200 oC, which is well below the temperature reported elsewhere.