Capacitive deionization (CDI) technology is currently considered a potential candidate for brackish water desalination. In this study, we designed iron oxide nanoparticle-incorporated activated carbon (AC/Fe₂O₃) via a facile and cost-effective hydrothermal process. The as-synthesized material was characterized using several techniques and tested as electrodes in CDI applications. We found that the distinctive properties of the AC/Fe₂O₃ electrode, i.e., high wettability, high surface area, unique structural morphology, and high conductivity, resulted in promising CDI performance. The electrosorptive capacity of the AC/Fe₂O₃ nanocomposite reached 6.76 mg g⁻¹ in the CDI process, with a high specific capacitance of 1157.5 F g⁻¹ at 10 mV s⁻¹ in a 1 M NaCl electrolyte. This study confirms the potential use of AC/Fe₂O₃ nanocomposites as viable electrode materials in CDI and other electrochemical applications.