Iron(III)-doped TiO2 nanopowders, with controlled iron to titanium atomic ratios (R-Fe/Ti) ranging from nominal 0 to 20%, were synthesized using oxidative pyrolysis of liquid-feed metallorganic precursors in a radiation-frequency (RF) thermal plasma. The valence of iron doped in the TiO2, phase formation, defect structures, band gaps, and magnetic properties of the resultant nanopowders were systematically investigated using Mossbauer spectroscopy, XRD, Raman spectroscopy, TEM/HRTEM, UV-vis spectroscopy, and measurements of magnetic properties. The iron doped in TiO2 was trivalent (3+) in a high-spin state as determined by the isomer shift and quadrupole splitting from the Mossbauer spectra. No other phases except anatase and rutile TiO2 were identified in the resultant nanopowders. Interestingly, thermodynamically metastable anatase predominated in the undoped TiO2 nanopowders, which can be explained from a kinetic point of view based on classical homogeneous nucleation theory. With iron doping, the formation of rutile was strongly promoted because rutile is more tolerant than anatase to the defects such as oxygen vacancies resulting from the substitution of Fe3+ for Ti4+ in TiO2. The concentration of oxygen vacancies reached a maximum at R-Fe/Ti = 2% above which excessive oxygen vacancies tended to concentrate. As a result of this concentration, an extended defect like crystallographic shear (CS) structure was established. With iron doping, red shift of the absorption edges occurred in addition to the d-d electron transition of iron in the visible light region. The as-prepared iron-doped TiO2 nanopowders were paramagnetic in nature at room temperature.