A Fe₂O₃–biochar nano-composite (Fe₂O₃–BC) was prepared from FeCl₃-impregnated pulp and paper sludge (PPS) by pyrolysis at 750 °C. The characteristics and methyl orange (MO) adsorption capacity of Fe₂O₃–BC were compared to that of unactivated biochar (BC). X-ray diffraction (XRD) and scanning electron microscopy (SEM) confirmed the composite material was nano-sized. Fourier transform infrared (FTIR) spectroscopy revealed the presence of hydroxyl and aromatic groups on BC and on Fe₂O₃–BC, but Brunauer–Emmett–Teller (BET) surface area and Barrett–Joyner–Halenda (BJH) porosity were lower for Fe₂O₃–BC than BC. Despite the lower BET surface area and porosity of Fe₂O₃–BC, its MO adsorption capacity was 52.79 % higher than that of BC. The equilibrium adsorption data were best represented by the Freundlich model with a maximum adsorption capacity of 20.53 mg g⁻¹ at pH 8 and 30 min contact time. MO adsorption obeyed pseudo-second-order kinetics for both BC and Fe₂O₃–BC with R² values of 0.996 and 0.999, respectively. Higher MO adsorption capacity for Fe₂O₃–BC was attributed to the hybrid nature of the nano-composites; adsorption occurred on both biochar matrix and Fe₂O₃ nanocrystals. Gibbs free energy calculations confirmed the adsorption is energetically favourable and spontaneous with a high preference for adsorption on both adsorbents. The nano-composite can be used for the efficient removal of MO (>97 %) from contaminated wastewater.