New (1-x)Bi0.5Na0.5TiO3 + xCaFeO3-δ solid solution compounds were fabricated using a sol–gel method. The CaFeO3-δ materials were mixed into host Bi0.5Na0.5TiO3 materials to form a solid solution that exhibited similar crystal symmetry to those of Bi0.5Na0.5TiO3 phases. The random distribution of Ca and Fe cations in the Bi0.5Na0.5TiO3 crystals resulted in a distorted structure. The optical band gaps decreased from 3.11 eV for the pure Bi0.5Na0.5TiO3 samples to 2.34 eV for the 9 mol% CaFeO3-δ-modified Bi0.5Na0.5TiO3 samples. Moreover, the Bi0.5Na0.5TiO3 samples exhibited weak photoluminescence because of the intrinsic defects and suppressed photoluminescence with increasing CaFeO3-δ concentration. Experimental and theoretical studies via density functional theory calculations showed that pure Bi0.5Na0.5TiO3 exhibited intrinsic ferromagnetism, which is associated with the possible presence of Bi, Na, and Ti vacancies and Ti3+-defect states. Further studies showed that such an induced magnetism by intrinsic defects can also be enhanced effectively with CaFeO3-δ addition. This study provides a basis for understanding the role of secondary phase as a solid solution in Bi0.5Na0.5TiO3 to facilitate the development of lead-free ferroelectric materials.