Developing photocatalytic nanomaterials with unique physical and chemical features using low-cost and eco-friendly synthetic methods is highly desirable in wastewater treatment. In this work, the magnetically separable α-Fe2O3-CeO2 nanocomposite (NC), with its respective metal oxides of α-Fe2O3 and CeO2 nanoparticles, was synthesized using a combination of hexadecyltrimethylammonium bromide (CATB) and ascorbic acid via the hydrothermal method. To tune the band gap, the heterojunction nanocomposite of α-Fe2O3-CeO2 was decorated with plasmonic Au nanoparticles (Au NPs). The various characterization methods, such as FTIR, UV-vis DRS, XRD, XPS, TEM, EDX, SEM, and PL, were used to determine the properties of the materials, including their morphology, elemental composition, optical properties, band gap energy, and crystalline phase. The nanocomposite of α-Fe2O3-CeO2@Au was utilized to remove Rose Bengal (RB) dye from wastewater using a photocatalytic technique when exposed to visible light. A comprehensive investigation of the impact of the catalyst concentration and initial dye concentration was conducted to establish the optimal photodegradation conditions. The maximum photocatalytic efficiency of α-Fe2O3-CeO2@Au (50 mg L−1) for RB (20 ppm) dye removal was found to be 88.9% in 120 min under visible-light irradiation at a neutral pH of 7 and 30 °C. Various scavengers, such as benzoquinone (BQ; 0.5 mM), tert-butyl alcohol (TBA; 0.5 mM), and ethylenediaminetetraacetic acid (EDTA; 0.5 mM), were used to investigate the effects of different free radicals on the photocatalytic process. Furthermore, the reusability of the α-Fe2O3-CeO2@Au photocatalyst has also been explored. Furthermore, the investigation of the potential mechanism demonstrated that the heterojunction formed between α-Fe2O3 and CeO2, in combination with the presence of deposited Au NPs, led to an enhanced photocatalytic efficiency by effectively separating the photogenerated electron (e−)–hole (h+) pairs.