Lead-free Ba(Zr0.07Ti0.93)O3/xFe2O3 (93BZT/xFe2O3, x = 0-1.0 mol%) ceramics were prepared using a conventional mixed oxide method. The Fe2O3 nanoparticles additive disturbed the long-range ferroelectric order of the ceramics by changing the normal P-E hysteresis loop for the unmodified ceramic into a constricted loop for the 0.5 mol % Fe2O3 ceramic thereby resulting in an enhancement of the electric field-induced strain and electrostrictive coefficient at this composition. The 1.0 mol% Fe2O3 ceramic showed the highest energy storage efficiency (98%). The M-H hysteresis loop and the magnetocapacitance value were improved by the Fe2O3 nanoparticles additive. Results indicated that the magnetic and electrical performances of Ba(Zr0.07Ti0.93)O3 modified by the Fe2O3 nanoparticle could be remarkably improved, thereby suggesting that this ceramic system has potentials for multifunction device applications.