Composite materials of (1-x)PZT-(x)Fe2O3, when x = 0.1, 0.3, 0.5, 0.7 and 0.9, were prepared by solid-state reaction technique. PZT powder was first synthesized with calcination temperature of 900 °C in air. Phase formation, densification, morphology and magnetic properties of (1-x)PZT-(x)Fe2O3 composites were investigated and discussed. The XRD technique was used to analyze the phase formation behavior. Fe2O3 reach phase was found with increasing Fe2O3 content. Interestingly, for high sintering temperature of 1100 oC, the major gramma - Fe2O3 phase was found for all Fe2O3 substitution in PZT system. Densities of the sintered specimens tend to decrease with increasing Fe2O3 content. In addition, the superparamagnetic behaviors were observed using a Vibrating Sample Magnetometer (VSM), which reached maximum value at x = 0.7. More importantly, Fe2O3 addition has been found to affect the phase formation, microstructure and ferromagnetic properties of PZT ceramics.