Fe-doped TiO2 nanopowders were prepared by mechanical alloying (MA) varying Fe contents up to 8.0 wt.%. The UV-vis absorption showed that the UV absorption for the Fe-doped powder shifted to a longer wavelength (red shift). The absorption threshold depends on the concentration of nano-size Fe dopant. As the Fe concentration increased up to 4 wt.%, the UV-vis absorption and the magnetization were increased. The benefical effect of Fe doping for photocatalysis and ferromagnetism had the critical dopant concentration of 4 wt.%. Based on the UV absorption and magnetization, the dopant level is localized to the valence band of TiO2.