We have designed a novel hybrid nanostructure by coating Fe₂O₃ nanoparticles with multi-walled carbon nanotubes to enhance the lithium storage capability of Fe₂O₃. The strategy to prepare Fe₂O₃@MWCNTs involves the synthesis of Fe nanoparticles wrapped in MWCNTs, followed by the oxidation of Fe nanoparticles under carbon dioxide. When used as the anode in a Li-ion battery, this hybrid material (70.32 wt% carbon nanotubes, 29.68 wt% Fe₂O₃) showed a reversible discharge capacity of 515 mAhg⁻¹ after 50 cycles at a density of 100 mAg⁻¹ and the capacity based on Fe₂O₃ nanoparticles was calculated as 1147 mAhg⁻¹, Three factors are responsible for the superior performance: (1) The hollow interiors of MWCNTs provide enough spaces for the accommodation of large volume expansion of inner Fe₂O₃ nanoparticles, which can improving the stability of electrode; (2) The MWCNTs increase the overall conductivity of the anode; (3) A stable solid electrolyte interface film formed on the surface of MWCNTs may reduce capacity fading.