In this work, nanoparticles of α-Fe2O3, α-Ho0.03Fe1.97O3 and α-Dy0.03Fe1.97O3 systems were synthesized by sol-gel method. These were characterized using powder x-ray diffraction technique (PXRD), high resolution transmission electron microscope (HRTEM ) and diffuse reflectance spectroscope (DRS). The PXRD analysis reveals hexagonal crystal structure with R-3c space group, without any additional phase formation. The average particle size and distribution of grains was obtained from HRTEM micrographs. From the DRS spectra, optical band gap was calculated using Kubleka-M unk relation, which was observed to decrease by incorporating Ho3+ and Dy3+ ions into α-Fe2O3 lattice. This optical band gap decrease for the doped nanoparticles will be a way forward to realize that these nanomaterials may be promising candidates for optoelectronic devices.