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°C 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°C, which is well below the temperature reported elsewhere.