Nanotechnology has the potential to introduce revolutionary changes to several areas of oil and gas industry such as exploration, production, enhanced oil recovery, and refining. In this paper, the effect of different concentrations of Fe2O3 nanoparticles as a catalyst on the heavy oil viscosity at various temperatures is studied. Furthermore, the effect of a mixture of Fe2O3 nanoparticles and steam injection on heavy oil recovery is studied in laboratory. The experimental tests show that some of these nanoparticles decrease the heavy oil viscosity less than 50% at certain concentrations at different temperatures. The reason for this viscosity reduction is that, similar to a catalyst, these nanoparticles activate some reactions. Our results of steam injection tests show that the injection of a Fe2O3 nanoparticle mixture increases heavy oil recovery because of cracking reactions which crack the C-S, C=C, and C≡C bonds of the heavy components of heavy oil and change them to light components.