(In1-xFex)2O3 (x=0.02,0.05,0.2) powders were prepared by a solid state reaction method and a vacuum annealing process. A systematic study was done on the structural and magnetic properties of (In1-xFex)2O3 powders as a function of Fe concentration and annealing temperature. The X-ray diffraction and high-resolution transmission electron microscopy results confirmed that there were not any Fe or Fe oxide secondary phases in vacuum-annealed (In1-xFex)2O3 samples and the Fe element was incorporated into the indium oxide lattice by substituting the position of indium atoms. The X-ray photoelectron spectroscopy revealed that both Fe2+ and Fe3+ ions existed in the samples. Magnetic measurements indicated that all samples were ferromagnetic with the magnetic moment of 0.49-1.73 mB/Fe and the Curie temperature around 783 K. The appearance of ferromagnetism was attributed to the ferromagnetic coupling of Fe2+ and Fe3+ ions via an electron trapped in a bridging oxygen vacancy.