This paper proposes a facile two-step hydrothermal route for the synthesis of maghemite (gamma-Fe2O3) nanocrystals. The synthesis route included two steps: (i) hydrothermal synthesis of Fe3O4 nanocrystals, and (ii) hydrothermal oxidation of the Fe3O4 nanocrystals to their gamma-Fe2O3 counterpart. Phase transition from gamma-Fe2O3 to hematite was studied by in situ XRD; the gamma-Fe2O3 nanocrystals exhibited enhanced phase transition temperature (> 600 degrees C). The magnetization curves revealed that the gamma-Fe2O3 nanocrystals showed ferromagnetic behavior with high saturation magnetization of 68 emu/g at room temperature.