In the study, the effect of nano ferric oxide (Fe2O3) modification was investigated to improve the rheological properties of bitumen and mechanical properties of Hot Mix Asphalt (HMA). Rutting potential and non-recoverable compliance (Jnr) were determined after subjecting modified bitumen to short-term and long-term aging. Multiple Stress Creep Recovery (MSCR) test was conducted to evaluate Jnr of bitumen and performance grade. Low temperature stiffness and flexural properties of modified bitumen were also determined. Indirect Tensile Strength (ITS) and Tensile Strength Ratio (TSR) of HMA modified with nano Fe2O3 was determined. Rutting was also determined by Hamburg Wheel Tracking Device (HWTD) for HMA modified with nano Fe2O3. Solar reflection was measured on HMA modified with nano Fe2O3. Results showed that, the nano Fe2O3 improved the rutting potential and non-recoverable compliance. Maximum rutting performance was observed by 5% Fe2O3 modified bitumen. The non-recoverable compliance and the rutting resistance have related. Modified HMA samples have higher strength value than reference sample. Nano Fe2O3 modification of HMA was provided resistance against moisture damage. 1% Fe2O3 modified HMA has the highest rutting resistance with the maximum 6 mm rut depth. Heat islands were increased by nano Fe2O3 modification.