Ultrafine α-Fe2O3 nanoparticles have been synthesized by a facile hydrothermal method. The products were characterized by X-ray powder diffraction (XRD), Fourier transform infrared spectroscopy (FT-IR), transmission electron microscopy (TEM). The diameter of the as-obtained α-Fe2O3 nanoparticles is about 6.8 nm on average. The solvent have great effect on the morphology of the final products. Furthermore, the effect of ultrafine α-Fe2O3 nanoparticles on the thermal decomposition of ammonium perchlorate (AP) was investigated by thermal gravimetric analyzer (TG) and differential thermal analysis (DTA). The thermal decomposition temperature of AP in the presence of α-Fe2O3 nanoparticles was reduced by 99 °C.