Thermal Plasma synthesis of Hematite Fe2O3 particles has been carried out for the generation of sub-micrometer range of particles. The plasma torch acts as a source of thermal energy and the plasma forming gas provides an inert atmosphere. The plasma column is stabilized by gas flow stabilization method in which a flowing external cold layer of a gas surrounds the arc column and the sheath gas enters into the reaction region. The sub-micrometer particles are generated by varying sheath gas with air and nitrogen, so that, the oxygen availability is varied during the formation of sub-micrometer particles. The plasma synthesized particles are characterized by X-ray diffraction, Moessbauer spectroscopy and spectrochemical analysis. The particle size distribution of the suspended aerosols and the aerosol deposits are determined. The aerosol size spectrum showed the presence of particles ranging from nano-meter to micrometer. Quantification of Fe2+ and Fe3+ present in the aerosol deposits showed that the generation of Fe2+ has been enhanced by 2% when the sheath gas is changed from air to nitrogen.