Polypyrrole (PPy), α-Fe2O3 and their hybrid nanocomposites have been successfully prepared using chemical polymerization, sol–gel and solid state synthesis method respectively. Films of PPy, α-Fe2O3 and PPy/α-Fe2O3 nanocomposites were deposited on glass substrates using spin coating technique and characterized using FTIR, XPS, FESEM, TEM techniques as well as their gas sensing performance were studied towards NO2 gas. FTIR and XPS study confirms the formation of PPy, α-Fe2O3 and PPy/α-Fe2O3 hybrid nanocomposites. FESEM studies revealed that, the films consists of porous granular type of morphology. TEM analysis revealed that the hybrid composite is in nano range. Impedance spectroscopy studies in presence of air and after exposure of NO2 gas were carried out on PPy, α-Fe2O3 and PPy/α-Fe2O3 hybrid nanocomposite films in the frequency range of 20Hz–10MHz. Impedance spectroscopy results demonstrate that, the impedance is mainly contributed by the potential barrier at grain boundaries of the films. With the help of impedance spectroscopy results, sensing mechanism between PPy, α-Fe2O3 and PPy/α-Fe2O3 hybrid nanocomposite films and NO2 gas molecules was studied and explored.