Electro-optical (E-O) property of nematic liquid crystalline (NLC) materials is the key parameter of display and non-display applications. Optical anisotropy (i.e., birefringence) is one of the critical parameters of these LCs via which E-O properties are governed. In this article, we have investigated the effect of ferric oxide nanoparticles (Fe2O3 NPs) on the birefringence and the order parameter of a NLC when doped into different weight percentages (wt%). The birefringence of the NLC has been examined via the phase modulation optical transmittance technique. It is noticed that the value of birefringence increases with the concentration of NPs in the LC matrix which is analogous to an improved order parameter of NLC after the addition of NPs. The improved ordering of LC molecules has been verified using polarized optical microscopy. This study helps in understanding the guest-host interactions for improved optical applications of LC materials.