Anatase and rutile TiO2 composite nanopowders with different Fe-doped concentrations were synthesized by sol–gel technique. X-ray diffraction (XRD) and X-ray photoelectron spectroscopy (XPS) were used to detect the crystalline structure and chemical state of the nanopowders. The photocatalytic activity was estimated by the degradation of 20 mg/L methyl orange under an irradiation of 350–450 nm light source. TiO2 powder with 28.76 wt% rutile showed the highest degradation among the TiO2 composite powders, but the 1.0 at% Fe-doping TiO2 with 20.64 wt% rutile phase exhibited an even higher degradation than that without Fe doping. Doping of Fe in TiO2 composite powder induced an evident increase in absorption peak and a significant red-shift in absorption edge from 420 nm to 460 nm in UV–vis absorption spectrum, and these characteristics are responsible for the improvement of photocatalytic activity.