We report the successful preparation and characterization of magnetic-fluorescent nanoparticles (NPs) by overcoming the difficulty of handling alpha-Fe nanoparticles that are less stable and have high affinity to get oxidized in air even at room temperature. Nanocrystalline alpha-Fe particles embedded by ZnO have been synthesized by a two step chemical route. Concentration of alpha-Fe has been varied as 15,30 and 50 wt% of the sample. Detailed investigations on structural, hyperfine, optical and magnetic characteristics have been carried out. X-ray diffraction, transmission electron microscopy and Fourier transform infrared spectroscopy studies have been used to confirm the coexistence of Fe and ZnO phases in the nanocomposites (NCs). The presence of alpha-Fe is also confirmed by Mossbauer spectroscopy. However, other forms of iron are also detected in the sample. UV-vis spectrum of nanocomposites shows a red shift with respect to the pristine ZnO which is attributed to the electron transfer between Fe and ZnO that provides support to the formation of the Fe-ZnO NC The photoluminescence (PL) spectra of Fe-ZnO nanocomposites exhibit blue shift of the UV and weaker visible emission lines compared to the pristine ZnO. Nanocomposites are found to be magnetically soft having high saturation magnetization with very low remanence. Low temperature coercivity enhancement due to freezing of uncompensated surface spins is also found in all samples. (C) 2014 Elsevier Ltd. All rights reserved.