Alpha-Fe(2)O(3) nanocrystals with controlled diameters ranging from 10 to 63 nm were successfully prepared. The finite size effects in alpha-Fe(2)O(3) nanocrystals were probed by X-ray diffraction, infrared spectroscopy, thermogravimetric analysis, UV-visible spectrum, and magnetization measurements. With a size reduction, alpha-Fe(2)O(3) nanocrystals showed a lattice expansion and an enlarged axial ratio of c/a that is in apparent contradiction to the previous conjecture of high lattice symmetry for alpha-Fe(2)O(3) nanocrystals at small sizes. The surface terminations of alpha-Fe(2)O(3) nanocrystals were found to be highly hydrated with a size dependence that surprisingly follows the surface hydration chemistry of anatase TiO2 nanocrystals reported recently by us. The lattice vibrations, electronic transitions, and magnetic properties of alpha-Fe(2)O(3) nanocrystals were significantly modified by surface hydration and lattice expansion. The finite size effects that occurred in alpha-Fe(2)O(3) nanocrystals at small sizes were first found to give a red shift in frequencies of perpendicular mode at 540 cm(-1), a blue shift in the electronic transition of double exciton process in visible region, and a significant decrease in the coercive force.