To improve the dispersion of Fe₂O₃ nanoparticles in solid propellant, the Fe₂O₃/hydroxyl-terminated polybutadiene (HTPB) composite nanoparticles were prepared by one-step blending (OSB) method and two-step blending (TSB) method, respectively. The HRTEM, TGA, FTIR and XRD were used to characterize the structure of the resultant composite nanoparticles. It was observed that HTPB could be physically coated on the surface of the Fe₂O₃ nanoparticles with both the two methods. Whereas the composite nanoparticles prepared by TSB method had better structure, in which the Fe₂O₃ nanoparticles exhibited better dispersion and the depth of the HTPB was uniform. After the composite process for the hydrophilic Fe₂O₃, the composite nanoparticles showed hydrophobicity. As a result, it can be deduced that the Fe₂O₃ nanoparticles in Fe₂O₃/HTPB composite nanoparticles had better dispersion in solid propellant.