The incorporation of functional nanoparticles into biodegradable insulating oils has emerged as an effective strategy for improving the operational performance of power transformers while promoting environmentally sustainable technologies. In this study, vegetable-based dielectric nanofluids containing iron(III) oxide (Fe₂O₃) nanoparticles were prepared to investigate the influence of nanoparticle loading on colloidal stability, rheological behavior, and dielectric performance. Nanofluids were formulated at concentrations of 0.05 and 0.1 wt.% using controlled magnetic stirring followed by ultrasonic dispersion under controlled temperature and relative humidity conditions to promote homogeneous particle distribution. Dynamic light scattering (DLS) was employed to determine the hydrodynamic particle size distribution (⁓500 nm) and polydispersity index (PDI=0.8), providing information on the size distribution and degree of polydispersity of the dispersed particles. Rheological characterization was carried out to evaluate viscosity and flow behavior, assessing the influence of Fe₂O₃ nanoparticles on the processability and suitability of the dielectric fluid for transformer operation. AC dielectric strength was determined according to ASTM D1816 to evaluate the insulating capability of the developed nanofluids. The incorporation of Fe₂O₃ nanoparticles produced concentration-dependent changes in the physicochemical properties of the suspensions while preserving the fluid characteristics required for insulating applications. The base vegetable oil reached a breakdown voltage of 22.9 kV. In contrast, the nanofluid with a particle concentration of 0.1 wt.% exhibited an enhanced dielectric response of 43.3 kV. This improvement in AC dielectric strength may be associated with interfacial charge-trapping and charge-transport phenomena, as well as the potential homogenization of the local electric field, mechanisms previously proposed for nanoparticle-based dielectric materials. However, these mechanisms were not directly investigated in the present study. These findings demonstrate that Fe₂O₃-based vegetable dielectric nanofluids constitute a promising alternative for the development of environmentally friendly insulating liquids with improved electrical reliability and stable colloidal behavior for next-generation power transformer applications.