The effect of iron oxide nanoparticles on medicinal plants biomass biosynthesis and antioxidant defense compounds should be assessed critically to ensure their safe and sustainable use within the agricultural fields and food chains. Current focus has been given to the effects of hematite nanoparticles (α-Fe2O3 NPs, ∼ 27 nm) and ferric ions (Fe3+) at different concentrations [(0, control), 10, 100 and 1000 mg L−1)] on morpho-physiological and biochemical parameters and benzophenanthridine alkaloids content in Eschscholzia californica plants. Upon exposure to α-Fe2O3 NPs, a significant (P < 0.05) inhibition (by 26.6%) of root biomass was observed at the high concentration (1000 mg L−1) over the control. As for the total dry weight of plants, significant (P < 0.01) increase (by 22.7%) was observed at all exposures, except that of 1000 mg L−1 α-Fe2O3 NPs/and Fe+3 treatment which was reduced by 12.8%. The treatment of 100 mg L−1 α-Fe2O3 NPs and Fe3+ caused significant increase in chlorophyll a (29.2% and 40%,), chlorophyll b (59.8% and 49.3%,) and carotenoids (14.3% and 25.4%%,) content when compared to control, respectively. However, accumulation of the lipid peroxidation product, malondialdehyde (MDA), in root and leaf tissues was similar (73.5% vs control) that was induced by 1000 mg L−1 α-Fe2O3 NPs. No significant change in MDA content was observed in leaves and roots of Fe+3 treated plants at all exposure doses. Furthermore, total phenolics and flavonoids content of the leaves and roots exposed to α-Fe2O3 NPs at 100 mg L−1 were significantly (P < 0.01) increased by 41–45%, 27–29%, and 44–48%, respectively, over the control. All obtained extracts revealed strong and significant scavenging effects on DPPH˙ as compared to control, but only exposure to 100 mg L−1 Fe+3 and α-Fe2O3 NPs treatment revealed the highest free radical scavenging/antioxidant activity by 44.2% and 37.65%, respectively. The alkaloid accumulation in leaves exhibited significant (P < 0.05) differences between the control plants and those treated with α-Fe2O3 NPs and Fe+3 of all concentrations. The eshchschollzine and sanguinarine contents showed no significant change in plants treated with Fe+3 concentrations; however, the exposure of high Fe+3 concentration increased (33.4%) the content of chelerythrine compared to control. Foliar applied α-Fe2O3 NPs enhanced the content of californidine (35.4%), eshchschollzine (22.3%), and eshchschollzine (19.1%) compared to control. The observed toxicity was dose-dependent for both α-Fe2O3 NPs and Fe+3. The synthesized endogenous secondary metabolites (e.g., phenolics, flavonoids and benzophenanthridine alkaloids) induce defense mechanism in exposed plants. These results suggest that specific concentrations (10–100 mg L−1) of α-Fe2O3 NPs have extra benefits both as a nanoregulator and nanoelicitor for plant growth promotion and biosynthesis of alkaloids and cellular antioxidants.