The influence of Fe2O3 addition on the growth characteristics of synthetic diamonds under high-temperature and high-pressure conditions was systematically investigated in this work. Utilizing Fe2O3 as an oxygen source within the Fe-Ni-C-O system, oxygen-containing diamond single crystals were synthesized. The role of the oxygen atoms during the growth of large-sized diamonds with the {111} face as the growth surface was also analyzed. In addition, the morphology, growth rate, internal nitrogen content, and crystal quality of the crystals were examined. From our analysis, it was demonstrated that an increase in Fe2O3 addition leads to a reduction in the size of the synthetic crystals and a gradual decrease in the growth rate. The diamonds with complete crystal forms exhibited no significant change in color, and all appeared yellow. When the addition exceeded a threshold, cracks appeared around the seed crystal at about 0.3 mm, resulting in a cracked crystal phenomenon. A further increase in the Fe2O3 addition resulted in the skeleton crystal, and the crystal color turned black. Fourier Transform Infrared Spectroscopy (FTIR) measurements were also conducted, indicating that the introduction of oxygen atoms increases the nitrogen content in the crystals, which in turn aggregates in the form of C-centered nitrogen. The Raman spectroscopy results showed that as Fe2O3 addition in the crystals increases, more impurities are introduced, leading to an increase in the diamond stress and a shift in the diamond Raman peak, along with an increase in the full width at half maximum. The photoluminescence (PL) characterization results indicated that with the increase of the Fe2O3 addition, the intensity of the photoluminescence peaks of NV− centers and W8 centers was enhanced, which is related to the increase in the internal C-centered nitrogen content of the crystals. From the acquired results, it was proven that Fe2O3 addition has a significant impact on the synthesis of diamond single crystals. Our work provides valuable pieces of experimental evidence for exploring the formation mechanism of natural diamonds.