Herein, the effect of Fe3+ ions substitution on the phase evolution, microstructure, electrical, and magnetic properties of Bi0.5(Na0.68K0.22Li0.10)0.5Ti1−xFexO3 (BNKLT‐xFe) ceramics with 0 ≤ x ≤ 0.020 is investigated. The BNKLT‐xFe ceramics are synthesized via the solid‐state combustion method. All BNKLT‐xFe compositions use a calcination temperature of 750 °C for 2 h and a sintering temperature of 1025 °C for 2 h. The X‐ray diffraction (XRD) and Raman spectra illustrate coexisting rhombohedral (R) and tetragonal (T) phases in all compositions and the R phase increases with increasing Fe content. The X‐ray absorption spectroscopy (XAS) technique confirms that the local R symmetry increases from 38.8% to 67.0% with increasing x content from 0 to 0.020. The average grain size gradually increases from 0.52 to 0.84 μm when the x content increases from 0 to 0.020. At x = 0.010, the ceramic has high ferroelectric properties (Pr ≈ 26.8 μC cm−2, Ec ≈ 20.4 kV cm−1) and the highest normalized strain () of 386 pm V−1. In addition, the maximum value of the temperature‐dependent dielectric constant of 6136 is found at x = 0.015. Although BNKLT‐0Fe ceramic show diamagnetic behavior, paramagnetic behavior is observed in all Fe3+ substituted samples.