This research work reports on the synthesis and characterization of iron oxide nanoparticles from sludge. Precipitates generated from the electro-coagulation process were collected, size reduced, beneficiated, and thermally treated in an inert atmosphere to form iron oxide nanoparticles. Structural, surface, and optical properties of raw and thermally treated sludge were examined using XRD, SEM, FTIR, UV/Vis, TGA/DTA, and Zeta Potential. The X-ray diffraction pattern confirmed that as the sludge is annealed at a temperature of 100, 300, 500, and 800 °C, the phase transformed to goethite, magnetite, maghemite, and hematite respectively. Pure hematite weere formed at the highest temperature. The crystallite size of hematite nanoparticle was calculated using the two most intense diffraction peaks and found to be about 30.4 nm at 800 °C and 28.3 nm at 500 °C. The SEM micrograph for heat-treated powered has an irregular shape with rough and porous surfaces leading to the best adsorptive feature. The optical band gap was found to be 2.06, 1.98, and 2.00 eV for 300 °C, 500 °C, and 800 °C heat-treated samples respectively. These findings can be an input to the industrialists and environmentalists that controlled sludge recycling mechanisms during wastewater treatment is beneficial in terms of cost and sustainability. Furthermore, an integrated wastewater treatment system with resource recycling technology at the initial stage of the installation could be made.