Functionalized Fe2O3 nanoparticles with low concentrations (1, 3 and 5 wt%) of reduced graphene oxide (rGO) were prepared by the thermal decomposition method. In accordance with X-ray diffraction (XRD), Fourier transform infrared (FTIR), UV-visible, and photoluminescence (PL) spectroscopies, a phase change from hematite (α-Fe2O3) to maghemite (γ-Fe2O3) was observed upon addition of rGO. The TEM investigation revealed that rGO led to the distortion of the Fe2O3 nanocuboid rods into spherical nanoparticles. The functionalized rGO acts as an electron accepter and led to the quenching of the luminescence behavior of Fe2O3. The functionalization of Fe2O3 with 5% rGO significantly increases its surface area and thus enhanced adsorption of acid blue 113 (AB113) from water was achieved. The adsorption studies revealed that 5%rGO/Fe2O3 (200 mg) adsorbed 89.6% of AB113 (100 mg L-1) within 440 min. In comparison with pure Fe2O3, the 5%rGO/Fe2O3 also exhibits excellent photocatalytic activity in the degradation of AB113 under visible light irradiation.