Nanoparticles of Fe 3 O 4 and Fe are chemically synthesized by reduction of Fe(acac) 3 using ascorbic acid in controlled condition. It was observed that addition of water during the chemical synthesis process yields Fe 3 O 4 nanoparticles, whereas if the reaction is carried out in absence of water yields Fe nanoparticles-which get oxidized upon exposure to air atmosphere. Fe 3 O 4 (15 ± 5 nm) and Fe/iron oxide nanoparticles (7 ± 1 nm) were successfully synthesized in the comparative study reported herewith. Mechanism for formation/synthesis of Fe 3 O 4 and Fe/iron oxide nanoparticles is proposed herewith in which added water acts as an oxygen supplier. Physico-chemical characterization done by SEM, TEM, EDAX, and XPS supports the proposed mechanism.