Abstract To effectively reduce environmental pollution, this study explores the synthesis and performance of a distinctive (C@Fe 2 O 3 /C 3 N 4 ) heterostructure composite photocatalyst. Using a multi‐technique approach, all possible characterizations related to structure, morphology, and physiochemical changes confirm heterostructure formation. The conductive carbon layer (C) plays a crucial role in improving charge separation, conductivity, and light absorption, while also demonstrating exceptional photocatalytic activity toward CO 2 reduction when exposed to visible light. To investigate the electronic structure and band alignment, density functional theory (DFT) calculation provides valuable insight into the charge transfer dynamics within the heterostructure. DFT analysis confirms the Z‐scheme mechanism and verifies that the conductive carbon layer plays a vital role in enhancing photocatalytic CO 2 reduction. The optimized composite heterostructure of (5 wt.%C@Fe 2 O 3 /C 3 N 4 ) exhibits remarkable photocatalytic CO 2 reduction (i.e., to valuable fuels such as CO and CH 4 , respectively). All these parameters highlight the potential use of heterostructure for environmental remediation and sustainable energy applications.