Monodispersed α-Fe2O3 nanoparticle aggregates with diameter ∼15 nm were successfully prepared by polyol process. The finite size effects in α-Fe2O3 nanoparticles were studied by X-ray diffraction, transmission electron microscopy, diffuse reflectance spectroscopy and ac-magnetic susceptibility. The optical band gap of α-Fe2O3 nanoparticles was significantly reduced compared to that of precursor. The α-Fe2O3 nanoparticles exhibited superparamagnetic behavior at room temperature, with blocking temperature TB = 100 K at 313 Hz and its value shifted to 124 K at 3.13 KHz. Analysis of ac-magnetic susceptibility data gives a superparamagnetic relaxation time (τo) of 4 X 10-9 s. © 2008 American Institute of Physics.