Abstract: We report on synthesis of two highly disperse nanoparticles viz. Fe2O3 & f-Fe2O3 using chemical reduction method. Reaction was initiated to mix solution A (i.e. Fecl3 6H2o) into solution B (i.e. Fecl24H2o) together under the presence of ammonium to develop nanoparticles. Mechanical properties of above mentioned nanoparticles filled with polyester polymer nanocomposites were fabricated to assess the possibility of using this filler as a new material. Methacryloxypropyl was used as a functionalization agent to prepare f-Fe2O3nanoparticles. Mechanical properties of f-Fe2O3 nanocomposites were improved with the help of functionalization when compared with Fe2O3 nanocomposites. A functionalization of nanoparticles favours the composite fabrication with a lower curing temperature as compared to the as-synthesised nanoparticles filled polyester nanocomposites. Thermogravimetric analysis showed an increased thermo-stability of f-Fe2O3 nanoparticles filled polyester nanocomposites as compared to the Fe2O3 nanoparticles filled counterparts. Mechanical and thermal properties were increased due to the homogeneous particle dispersion and chemical bonding between nanoparticles and polyester matrix. The nanoparticles become magnetically harder after incorporation into the polyester resin matrix.