Herein, the successful synthesis of ZnO/Fe‐doped Bi2O3 nanocomposite through a microwave‐assisted coprecipitation method is reported. The fabricated materials are comprehensively characterized using X‐ray diffraction, field‐emission scanning electron microscopy, energy dispersive X‐ray analysis, UV–vis, vibrating sample magnetometer, and photoluminescence techniques. The results of the investigation unveil a reduction in crystalline size, a low bandgap of 1.7 eV, and notable improvements in magnetization and surface area (50.63 m2 g−1) upon the incorporation of ZnO and Fe doping into Bi2O3. Remarkably, the ZnO/5% Fe‐doped Bi2O3 composite demonstrates 86.34% degradation of methylene blue (MB) dye within 60 min. Furthermore, this composite exhibits significant antifungal activity, as evidenced by a zone of inhibition diameter of 20 mm against Aspergillus flavus. Ongoing studies are investigating the impact of pH, inorganic ions, scavenger mechanisms, and MB degradation. These findings underscore the synergistic effects of ZnO and Fe, which enhance the absorption of photons that decrease the recombination rate and increase the charge transfer of Bi2O3, contributing to the improved material properties of the ZnO/5% Fe‐doped Bi2O3 composite. This study paves the way for further exploration of the multifunctional properties of ZnO/Fe‐doped Bi2O3 nanocomposites in diverse environmental and biomedical applications.