Low-cost, high-yield dilute magnetic semiconductor FexSn1−xO2 with x = 0.025, 0.05, 0.075 compositions were synthesized by a one-step chemical precipitation method at room temperature. XRD analysis reveals a tetragonal rutile structure with little orthorhombic SnO2 and Sn metal phase. The optical bandgap is tunable from 3.51 eV to 2.2 eV by Fe doping, and the composition Fe0.075Sn0.925O2 has maximum optical absorption with a minimum energy gap of 2.2 eV, beneficial for optical applications. Magnetic switching from paramagnetism to soft ferromagnetism at room temperature is revealed with Fe doping with ultra-low coercivity useful for DMS applications. In addition to the strong photoluminescent blue peak reported by most authors, a moderate IR peak at 717 nm is observed in this work, which is attributed by the presence of Fe2+ ions. The cation (Sn/Fe) deficiency analysis using the Rietveld method shows a gradual decrease from 3.5% to 1.5%, which will be the primary cause of the photoluminescent emissions. Electronic structure reveals apical Sn/Fe-O strong covalent bonding and moderate Sn/Fe-O equatorial ionic bonding tendency, which are the favourable conditions for ferromagnetism in Fe-doped SnO2. Higher electron density at non-nuclear maxima (NNM) points shows the defect mechanism, which enhances the photoluminescence and energy gap reduction.