The use of biological products such as microorganisms, plant extracts or plant biomass is a better alternative to chemical and physical methods for the engineering of metal oxide nanoparticles through an environmentally benign route. Hematite (α-Fe2O3) nanoparticles have acquired significant attention from researchers for being the most stable iron oxide in air under ambient conditions. Further, they are also known for their extensive applications in diverse fields. In the present work, hematite (α-Fe2O3) nanoparticles have been synthesized by the sole use of the extract of guava (Psidium guajava) leaves. The synthesized material has been studied by X-ray diffraction (XRD), UV-visible spectroscopy, Fourier transform infrared (FTIR) spectroscopy, Vibrating Sample Magnetometry (VSM), Scanning Electron Microscopy (SEM) and Transmission Electron Microscopy (TEM) techniques. The average diameter of α-Fe2O3 nanoparticles is observed to be about 34 nm. Absorption studies of the sample from UV to near IR regions show four absorption bands at 347 nm, 543 nm, 652 nm and 849 nm. The photoluminescence (PL) spectrum shows band edge emission at 688 nm. The FTIR spectrum reveals the role of biomolecules present in the extract in capping the nanoparticles. The VSM study shows the weak ferromagnetic nature of the synthesized nanoparticles. The antibacterial activities of the synthesized nanoparticles against Gram-positive and Gram-negative bacteria have been ascertained through an agar-well diffusion method. Further, the nanoparticles show enhancement in thermal conductivity for the base fluids water and ethylene glycol. The bioefficacy and thermal conductivity enhancement exhibited by the as synthesized nanoparticles may lead to their possible applications in environmental and industrial fields.