This study investigated the effects of nano zero-valent iron-modified biochar (nZVI@BC) as a soil amendment on potted rice growth, soil properties, and heavy metal dynamics. Seven treatments with varying amounts of soil conditioner, biochar, and nZVI@BC were applied to potted rice. Results showed that nZVI@BC application significantly improved rice agronomic traits, with the 15 g·kg−1 treatment increasing the panicle formation rate by 15% and 100-grain weight by 8% compared to the control. Soil fertility was enhanced, with available phosphorus increasing from 137 to 281 mg·kg−1 in the most effective treatment. Heavy metal analysis revealed that nZVI@BC application did not increase soil heavy metal content, with Cd levels remaining below 0.3 mg·kg−1 across treatments. Notably, the 10 g·kg−1 nZVI@BC treatment showed potential for slight Cd immobilization, reducing its concentration from 0.32 to 0.26 mg·kg−1. Microbial community analysis showed that nZVI@BC altered soil microbial diversity and composition, with the 10 g·kg−1 treatment resulting in the highest fungal diversity (Chao1 index: 294.219). The relative abundance of the beneficial fungal class Agaricomycetes increased from 40% to 55% with optimal nZVI@BC application. These findings suggest that nZVI@BC has potential as an effective soil amendment for improving rice cultivation while maintaining soil health, microbial diversity, and potentially mitigating heavy metal contamination.