Ag-Fe2O3 nanocomposites were synthesized and characterized by means of different analytical techniques; X-ray diffraction, Raman spectroscopy, transmission electron microscopy, diffuse reflectance UV-vis spectroscopy, N2-physisorption, X-ray photoelectron spectroscopy and H2-temperature programmed reduction. Catalytic activities of the synthesized materials were evaluated for CO oxidation. It was shown that catalytic performance of xAg-Fe (x = 1, 3, 5, 7 and 10 wt.% Ag) depends strongly on Ag loading, among which 5Ag-Fe and 7Ag-Fe displayed the best catalytic activity for CO oxidation. The experiments show that Ag-Fe nanocomposite has a good reproducibility and stability in CO oxidation. Comparison of catalytic, structural and spectroscopic measurements suggest that Ag ions are dispersed inside Fe2O3 mesopores or on the external support surface, as well as charged Ag-Fe interactive species to be the active states of Ag in the CO oxidation process. The mesoporous nature and higher specific surface areas of the Ag-Fe nanocomposite lead to an increase in active surface for the reaction.