Herein, PVP/Fe2O3 films were produced by adding Fe2O3 nanoparticles with varying proportions into the PVP matrix by the casting technique. Using Fourier transform infrared (FTIR) spectroscopy, scanning electron microscopy (SEM), surface roughness testing, contact angle goniometry, and UV/Vis technique, the optical and structural behaviors of the produced PVP/Fe2O3 films were examined. These methods facilitate comprehension of the effects of Fe2O3 addition on PVP characteristics. FTIR and SEM examined the structural change of PVP as the Fe2O3 concentration increased. The infrared spectra display that there are changes in response in the pure PVP due to the change the Fe2O3 nanoparticle concentrations, which causes variations in the absorption bands' intensity due to the formation of hydrogen bonds. SEM micrographs revealed a dispersed collection of homogeneously distributed nanoparticles within the PVP polymer matrix. Because of the surface chemical bonding, which is the consequence of the oxidation sustained by adding the nanoparticles, the film becomes rougher as the concentration of Fe2O3 increases. In comparison to the pure PVA sample, the absorbance spectra of the nanocomposite samples exhibited a shift toward the high wavelength values in the absorption edge, indicating a decrease in the energy gap and also, improves its optical conductivity and refractive index. The Wemple-DiDomenico model is employed to calculate the optical dispersion parameters. Additionally, nonlinear refractive index, linear optical susceptibility, and third-order nonlinear optical susceptibility were investigated. These findings demonstrate the enhanced optical and structural characteristics of Fe2O3-filled PVP films, highlighting their potential for optical applications.