Iron (III) oxide, Fe₂O₃, nano particles of approximately 40nm diameter were synthesized  by sol–gel method and their nitrogen dioxide adsorption and desorption kinetics were investigated by custom fabricated gas sensor unit. Themorphology and crystal structure of Fe₂O₃ nanoparticles were studied by scanning electron microscopy (SEM), fielde mission scanning electron microscopy (FESEM) and X-ray diffraction (XRD) respectively. The roughness of film surface was investigated by atomic force microscopy (AFM). Relative sensitivity of Fe₂O₃ nanoparticles for NO₂ sensor was determined by electrical resistance measurements. Our reproducible experimental results show that Fe₂O₃ nanoparticles have a great potential for nitrogen dioxide sensing applications operating at a temperature of 200^oC.