Corrosion-induced iron rust causes severe danger, pollution, and economic problems. In this work, nanopowders of Fe2O3 and Fe2O3/zeolite are synthesized for the first time using rusted iron waste and natural zeolite heulandite by chemical precipitation. The chemical composition, nanomorphologies, structural parameters, and optical behaviors are investigated using different techniques. The Fe2O3/zeolite nanocomposite showed smaller sizes and greater light absorption capability in visible light than Fe2O3 nanopowder. The XRD pattern shows crystalline hematite (α-Fe2O3) with a rhombohedral structure. The crystallite sizes for the plane (104) of the Fe2O3 and Fe2O3/zeolite are 64.84 and 56.53 nm, respectively. The Fe2O3 and Fe2O3/zeolite have indirect bandgap values of 1.87 and 1.91 eV and direct bandgap values of 2.04 and 2.07 eV, respectively. Fe2O3 and Fe2O3/zeolite nanophotocatalysts are used for solar photoelectrochemical (PEC) hydrogen production. The Fe2O3/zeolite exhibits a PEC catalytic hydrogen production rate of 154.45 mmol/g.h @ 1 V in 0.9 M KOH solution, which is the highest value yet for Fe2O3-based photocatalysts. The photocurrent density of Fe2O3/zeolite is almost two times that of Fe2O3 catalyst, and the IPCE (incident photon-to-current conversion efficiency) reached ~27.34%@307 nm and 1 V. The electrochemical surface area (ECSA) values for Fe2O3 and Fe2O3/zeolite photocatalysts were 7.414 and 21.236 m2/g, respectively. The rate of hydrogen production for Fe2O3/zeolite was 154.44 mmol h−1/g. This nanophotocatalyst has a very low PEC corrosion rate of 7.6 pm/year; it can retain ~97% of its initial performance. Therefore, the present research can be applied industrially as a cost-effective technique to address two issues at once by producing solar hydrogen fuel and recycling the rusted iron wires.