A novel Fe2O3/carbon composite is prepared using a facile one-step hydrothermal method. Its structure, morphology and performance as anode of lithium ion battery are investigated with X-ray diffraction, scanning electron microscopy, thermogravimetry, cyclic voltammetry, galvanostatic charge/discharge, and electrochemical impedance spectroscopy. It is found that the as-prepared composite is composed of α-Fe2O3 nanorods of about 75 nm in diameter and 1 μm in length, which are enwrapped with soft and curly carbon nanofibers, and exhibits superior charge/discharge performance compared to bare α-Fe2O3 nanorods, especially at high current rate. The discharge capacity is 1069 mAh g−1 at the first cycle and remains 560 mAh g−1 after 30 cycles at 0.2C for the bare nanorods, but improved to 1278 mAh g−1 and 960 mAh g−1 for the composite. At 12C, the discharge capacity is only 798 mAh g−1 initially and becomes 98 mAh g−1 after 30 cycles for the bare nanorods, while 844 mAh g−1 and 292 mAh g−1 for the composite. The improved performance of the composite is attributed to the bondage from carbon nanofibers, which contributes to the improvement in electronic conductivity and structure stability of α-Fe2O3 nanorods.