Fe-doped TiO2 nanocrystalline powders were prepared by mechanical alloying (MA) by varying Fe contents up to 8.0 wt.%. The TEM analyses were carried out to clarify morphologies and position of Fe within the mechanically alloyed powders. The Fe-doped powder consisted of spherical particles, and the average grain size was less than 10 nm. For the Fe-doped TiO2, the color of the powders changed from white to bright yellow with increasing concentration of Fe. The UVvis absorption showed that the UV absorption for the Fe-doped powder shifted to a longer wavelength (red shift) and the photo-efficiency was enhanced. The absorption threshold depends on the concentration of nano-sized Fe dopant. Mössbauer spectrum for 4 wt.% Fe showed the ferromagnetic phase (sextet) and paramagnetic phase (doublet). However, the only paramagnetic phase (doublet) was seen for 8 wt.% Fe. As the Fe concentration increased up to 4 wt.%, the UV-vis absorption and the magnetization were increased. The beneficial effect of Fe doping for photocatalysis and ferromagnetism was observed at the critical dopant concentration of 4 wt.%. Based on the UV absorption and magnetization, the dopant level was localized to the valence band of TiO2.