Pure and Er-doped BiFeO3 nanoparticles were prepared using a sol–gel method. The remanent magnetization was found to increase with increasing Er concentration. Due to the cocontribution of both the ferromagnetic coupling between Er3+ and Fe3+ ions and the suppression of spatial spin structure of BiFeO3, Er substitution is a more effective approach of enhanced magnetization than the other rare-earth (RE) element substitutions. The observed dielectric loss behavior in the doped sample indicated that the leakage current decreased due to the substitution with Er. The evidence of enhanced magnetization and improved leakage in Er-doped BiFeO3 at room temperature makes it a good candidate for potential applications.