A composite consisting of iron oxide/graphene nanosheets (GNS) is synthesized by hydrothermal treatment of a mixture of graphitic oxide and FeCl2 in the presence of N2H4 as reducing agent. Special attention is given to the characterization of the iron oxide owing to the disparity of criteria found in literature to distinguish between maghemite (γ-Fe2O3) and magnetite (Fe3O4). Here, the oxide is accurately characterized as γ-Fe2O3. The beneficial effect of the simultaneous formation of GNS and γ-Fe2O3 is reflected in the capacity of the cell, which is much higher than those of the individual components. This may be the result of a synergistic effect of the good conducting properties of graphene, its buffering action on the volume changes undergone by γ-Fe2O3 on reacting with Li and the high capacity of this oxide. The composite also has good rate capability and can recover its capacity at low current intensities after prolonged cycling at high rates. The composite performs very well in a full cell configuration with LiFePO4 as cathode, where it exhibits an average discharge capacity of 122mAhg−1 and excellent capacity retention over 50 cycles. In addition, the cell has good rate capability at current densities as high as 5C.