Nanocrystalline undoped LiNbO3 and LiNbO3 doped with x% Fe (x=0.5, 1, 2, 3, 5) were synthesized via a combustion method. Fe-doped LiNbO3 with a 1mol% doping concentration exhibited a room-temperature ferromagnetism of 0.06emu/g. There was an abrupt change in properties when the doping concentration of Fe reached 2mol%, where the lattice contracted obviously and the saturation magnetization (Ms) increased an order of magnitude to 0.275emu/g; Ms slightly increased to its maximum value of 1.18emu/g when the doping concentration was further increased to 5mol%. Raman spectra showed that the substitution of Li by Fe occurred at small doping concentrations and the substitution of Nb at the Nb site occurred at higher doping concentrations. The results suggest that Fe3+ replaced NbLi4+ first and the weaker ferromagnetism is due to the minor fraction of NbLi4+ in LiNbO3. Then, Fe3+ substituted Li+, resulting in large lattice distortion and much stronger spin coupling of Fe–Nb. Finally, the excess Fe3+ started to replace Nb5+at the Nb sites, where the spin coupling of Fe–Nb is weaker than that at the Li site. An analysis of the experimental results suggests that the congruent Fe-doped LiNbO3 is a promising room-temperature single-phase multiferroic material.