<p>Green microalgae are being used in innovative ways to synthesize nanoparticles and molecules that are viable for commercial applications. Recent advances in the eco-friendly biological generation of Fe₂O₃ NPs have significantly improved both their biological applicability and quality. In this study, Fe₂O₃ NPs were synthesized using <i>Chlorella vulgaris</i> (BUACC06) extract as a strong reducing and capping agent, and their formation was monitored by UV-visible spectroscopy, observing a characteristic peak at 416 nm. Subsequently, the synthesized Fe₂O₃ NPs were characterized for their shape, size, charge, crystallinity, purity, and functional groups using SEM, TEM, Zeta potential, XRD, EDX, and FT-IR analysis. Magnetic properties were also characterized through coercivity and magnetization measurements. The antimicrobial activity of the phyco-fabricated Fe₂O₃ NPs was evaluated against four Gram-positive and Gram-negative bacterial strains. Among them, <i>Bacillus subtilis</i> was found to be the most susceptible (ZOI: 18 mm), while <i>Escherichia coli</i> and <i>Staphylococcus aureus</i> showed the least susceptibility (ZOI: 16 mm). Furthermore, the antioxidant capacity of the phyco-fabricated Fe₂O₃ NPs was assessed through DPPH assays, yielding an IC₅₀ of 19.76 μg mL^-1. Their biocompatibility and protective effects on 3T3 and C6 cells were also assessed at different concentrations. In conclusion, our study revealed great biological potential of the phyco-fabricated Fe₂O₃ NPs, suggesting their promise for future <i>in vitro</i> and <i>in vivo</i> therapeutic studies.</p> Graphical abstract <p></p>