In this study, the enhancement of magnetic properties in Fe2O3nanoparticles through nanostructural modification via carbon coating is investigated. Fe2O3and carbon‐coated Fe2O3nanoparticles are synthesized using the solvothermal method. Structural, morphological, optical, and magnetic properties are comprehensively analyzed. The results demonstrate a significant reduction in particle size upon carbon coating, effectively mitigating agglomeration. Furthermore, carbon‐coated nanoparticles exhibit substantial enhancement in coercivity, remanence, and saturation magnetization suggesting improved magnetic behavior in comparison to their uncoated counterparts. This enhancement is attributed to the prevention of spin misalignment at the nanoparticle surface by the carbon coating, as well as the formation of distinct magnetic domains due to the reduced particle size. The observed improvements underscore the effectiveness of carbon coating in tailoring the magnetic properties of Fe2O3nanoparticles for applications in magnetic devices and biomedical systems, such as magnetic hyperthermia and drug delivery systems, where precise control over magnetic behavior is crucial.