Novel metal functionalization of the semiconductor metal oxide surface is an effective approach to address the poor selectivity with increased sensing performance. Functionalization enhances sensitivity through chemical and electronic sensitization, while metal nanoparticles catalyze target gas molecule adsorption. Taking this approach into consideration, we demonstrated Silver (Ag) nanoparticles functionalized α-Fe2O3 nanostructured thin film gas sensor for sensing of NO2 molecules. The RF-sputtered α-Fe2O3 nanostructured thin film were deposited at 600 °C followed by materials characterizations. Furthermore, we functionalized the α-Fe2O3 sensor with various quantity of Ag NPs using sputtering techniques and observed the effect on sensing performance. The α-Fe2O3 sensor with 10 s Ag functionalization shows the highest relative response among all samples of ∼71.02% for 100 ppm NO2 concentration at 150 °C. Further, the selectivity was dramatically improved upon the functionalization with Ag due to its catalytic properties in comparison with the pristine sensor. The Ag functionalization results in an improved surface-to-volume ratio and more reaction and adsorption sites for gas molecules. As a result, Ag functionalization seems to be a potential strategy to increase the sensing response of an α-Fe2O3 sensor for selective sensing of NO2. Display omitted •Fabrication of Ag anchored α-Fe2O3 nanostructures for NO2 gas sensors.•Further α-Fe2O3 thin film was anchored with Ag for 5, 10 and 15 s using DC sputtering.•Ag NPs increase surface-to-volume ratio and adsorption sites for gas molecules.•The measured sensing response was 71.02% at 150 °C for 100 ppm of NO2 around with a lower detection limit of 1 ppm.•In Ag/α-Fe2O3 better selectivity as compared to pristine α-Fe2O3 and drastic improvement in sensitivity is observed.