High conductivity and the absence of ferromagnetism in pristine graphene fail to satisfy primary criteria for possible technological application in spintronics. Opening of the bandgap in graphene is primarily desirable for such applications. We report a simplified and novel approach of controlled grafting of a magnetic alloy on reduced graphene oxide. This eventually leads to ferromagnetism of the stable hybrid material at room temperature, with a large moment (∼1.2 μB) and a remarkable decrease in conductivity (∼10 times) compared to highly ordered pyrolytic graphite. Our model band-structure calculation indicates that the combined effect of controlled vacancies and impurities attributed to the nanocrystalline alloy grafting leads to a promising step toward band gap engineering.