In this study, synthesis and characterization of chitosan/maghemite (Cs/Fe2O3) composites thin film has been described. Its properties were characterized using Fourier transform infrared spectroscopy (FTIR), atomic force microscopy (AFM) and ultraviolet-visible spectroscopy (UV-Vis). FTIR confirmed the existence of Fe–O bond, C–N bond, C–C bond, C–O bond, O=C=O bond and O–H bond in Cs/Fe2O3 thin film. The surface morphology of the thin film indicated the relatively smooth and homogenous thin film, and also confirmed the interaction of Fe2O3 with the chitosan. Next, the UV-Vis result showed high absorbance value with an optical band gap of 4.013 eV. The incorporation of this Cs/Fe2O3 thin film with an optical-based method, i.e., surface plasmon resonance spectroscopy showed positive response where mercury ion (Hg2+) can be detected down to 0.01 ppm (49.9 nM). These results validate the potential of Cs/Fe2O3 thin film for optical sensing applications in Hg2+ detection.