The nanosized (50-70 nm) pyrochlore Bi1.5Fe0.5Ti2O7-δ was prepared by a coprecipitation technique. Characterization of Bi1.5Fe0.5Ti2O7-δ was carried out by powder X-ray diffraction (XRD), transmission electron microscopy (TEM), scanning electron microscopy (SEM), differential scanning calorimetry (DSC), Raman spectroscopy, Mössbauer spectroscopy, and magnetic susceptibility measurements. The study of Fe doping in Bi2Ti2O7 was performed by means of density functional theory (DFT) calculations. The nanosized Bi1.5Fe0.5Ti2O7-δ sample crystallizes in the structural type of pyrochlore (Fd3¯ m). The distribution of Fe atoms over the sites of Bi and Ti was studied from DFT simulations and then confirmed by the XRD analysis and Mössbauer method. The local distribution, electronic structure, and magnetic behavior of nanosized Bi1.5Fe0.5Ti2O7-δ are determined by the local microstructure of the metastable nanosized sample. Based on the examination of the Mössbauer spectrum of the Bi1.5Fe0.5Ti2O7-δ nanopowder, the following states of oxidation were revealed for iron atoms: Fe4+ in the titanium sites with a fraction of ∼5.7% and two states of Fe3+ (in the Bi and Ti sites) with different geometries of the oxygen surrounding. The ratio of Fe3+ distributed over the sites correlates well with the distribution in the ceramic sample. The presence of Fe4+ was found only in the nanosized Bi1.5Fe0.5Ti2O7-δ. The experimental effective magnetic moment of Fe atoms in the nanosized Bi1.5Fe0.5Ti2O7-δ appeared noticeably lower than that in the ceramic sample. The temperature dependence of μeff within the temperature range of 50-300 K is adequately described by the model of coexistence of Fe3+ and Fe4+ and the existence of clusters.