In the present work, we achieved the fabrication of MgO-Fe2O3/γ-Al2O3 NCs using a deposition–coprecipitation process. XRD, TEM, and SEM with EDX, XPS, FTIR, and PL spectroscopy were applied to examine the physicochemical properties of the samples. XRD analysis confirmed the successful incorporation of γ-Al2O3, MgO, and Fe2O3 phases. TEM and SEM images indicate that the nanocomposites exhibited an agglomerated morphology with spherical shapes and particle sizes in the range of 6–12 nm. EDX and XPS spectra revealed a composition of MgO-Fe2O3/γ-Al2O3 NCs. FTIR spectra identified characteristic vibrational bands corresponding to the chemical bonds present in the samples, confirming their successful synthesis. PL analysis showed the reduced recombination rate of electron–hole pairs and enhanced charge separation efficiency, which are important factors for improved photocatalytic activity. Photocatalysis results show that the MgO-Fe2O3/γ-Al2O3 NCs exhibited significantly higher photocatalysis efficiencies of 87.5% for Rh B and 90.4% for MB after 140 min, compared to γ-Al2O3 NPs and Fe2O3/γ-Al2O3 NPs. In addition, prepared MgO-Fe2O3/γ-Al2O3 NCs demonstrated superior stability after six runs. Biochemical data showed that the MgO-Fe2O3/γ-Al2O3 NCs exhibited significant toxicity toward A549 cancer cells while displaying low toxicity toward IMR90 normal cells. The IC50 values (µg/mL ± SD) for γ-Al2O3 NPs, Fe2O3/γ-Al2O3 NPs, and MgO-Fe2O3/γ-Al2O3 NCs were 16.54 ± 0.8 µg/mL, 14.75 ± 0.4 µg/mL, and 11.40 ± 0.6 µg/mL, respectively. These results suggest that the addition of Fe2O3 and MgO to γ-Al2O3 not only enhances photocatalytic activity but also improves biocompatibility and anticancer properties. This study highlights that the MgO-Fe2O3/γ-Al2O3 NCs warrant further exploration of their potential applications in environmental remediation and biomedicine.