A simple approach was developed for the fabrication of a Fe2O3/carbon composite by impregnating activated carbon with a ferric nitrate solution and calcinating it. The composite contains graphitic layers and 10wt.% Fe2O3 particles of 20–50nm in diameter. The composite has a high specific surface area of ∼828m2g−1 and when used as the anode in a lithium ion battery (LIB), it showed a reversible capacity of 623mAhg−1 for the first 100 cycles at 50mAg−1. A discharge capacity higher than 450mAhg−1 at 1000mAg−1 was recorded in rate performance testing. This highly improved reversible capacity and rate performance is attributed to the combination of (i) the formation of graphitic layers in the composite, which possibly improves the matrix electrical conductivity, (ii) the interconnected porous channels whose diameters ranges from the macro- to meso- pore, which increases lithium-ion mobility, and (iii) the Fe2O3 nanoparticles that facilitate the transport of electrons and shorten the distance for Li+ diffusion. This study provides a cost-effective, highly efficient means to fabricate materials which combine conducting carbon with nanoparticles of metal or metal oxide for the development of a high-performance LIB.