Control doping of magnetic nanoparticles and its influence on optical and structural properties of tellurite glass is important from device perspectives. Natural Fe3O4 nanoparticles obtained by extracting and ball milling iron sand, are incorporated in the Er3þ doped tellurite glasses having composition (80-x)TeO2:xFe3O4:18ZnO: 1Li2O :1Er2O3 (0≤x≤1.5) in mol% by melt quenching method at 850 oC. X-Ray diffraction spectra confirms the presence of iron nanoparticles with estimated sizes 18–70 nm and an amorphous structure of the samples. Thermal and optical characterizations are made using diffential thermal analysis, ultraviolet–visible and photoluminescence spectrocopies. It is found that the presence of nanoparticles changes color and thermal stability of the glasses, which is proved by increasing thermal stability factor from 118 to 132 oC. Absorption spectra consist of six peaks corresponding to different transition from ground state to the excited states in which the quench of the peak associated with 4F1/2 is attributed to the effect nanoparticles. Moreover, the shift in the absorption edge from ~400 to ~500 nm indicates a significant decrease of the optical energy band gap for both direct and indirect allowed transitions and a decrease in the Urbach energy as much as 0.116 eV is observed. The room temperature down-conversion luminescence spectra obtained under 500 nm excitation exhibit two strong peaks related to excited states 4S3/2 and 4F9/2 of Er3+ ions in the absence of nanoparticles. Furthermore, embedding nanoparticles into the glass not only make the peaks weaker but the second peak completely disappears. Interestingly, the emission bands of the Er3+ ion are quenched as concentration of the magnetic nanoparticles is increased.