The introduction of heterostructures is a new approach in gas sensing due to their easy and quick transport of charges. Herein, facile hydrothermal and solid-state techniques are employed to synthesize an α-Fe2O3/Nb2O5 heterostructure. The morphology, microstructure, crystallinity and surface composition of the synthesized heterostructures are investigated by scanning electron microscope, transmission electron microscope, x-ray diffraction, x-ray photoelectron spectroscopy and Brunauer–Emmett–Teller analyses. The successful fabrication of the heterostructures was achieved via the mutual incorporation of α-Fe2O3 nanorods with Nb2O5 interconnected nanoparticles (INPs). A sensor based on the α-Fe2O3(0.09)/Nb2O5 heterostructure with a high surface area exhibited enhanced gas-sensing features, maintaining high selectivity and sensitivity, and a considerable recovery percentage towards ethanol gas. The sensing response of the α-Fe2O3(0.09)/Nb2O5 heterostructure at lower operating temperature (160 °C) is around nine times higher than a pure Nb2O5 (INP) sensor at 180 °C with the flow of 100 ppm ethanol gas. The sensors also show excellent selectivity, good long-term stability and a rapid response/recovery time (8s/2s, respectively) to ethanol. The superior electronic conductivity and upgraded sensitivity performance of gas sensors based on the α-Fe2O3(0.09)/Nb2O5 heterostructure are attributed due to its unique structural features, high specific surface area and the synergic effect of the n–n heterojunction. The promising results demonstrate the potential application of the α-Fe2O3(0.09)/Nb2O5 heterostructure as a good sensing material for the fabrication of ethanol sensors.