Gadolinium (Gd3+) substituted bismuth ferrite (BF) photocatalysts were synthesized using sol‐gel method and the effect of Gd3+ substitution was investigated on the structural, optical and surface properties of Gd3+ substituted BF nanoparticles. Different techniques such as X‐ray diffraction (XRD), high‐resolution transmission electron microscopy (HRTEM) with Selected area electron diffraction pattern (SAED), Fourier transform infrared spectra (FTIR), ultraviolet‐visible diffuse reflection spectra (UV‐DRS), field emission scanning electron microscopy (FESEM), Brunauer‐Emmett‐Teller (BET), and photoluminescence spectra (PL) were employed to characterize the nanoparticles. Compared to nascent BF, the Gd3+ substituted BF nanoparticles showed improved long‐range ordering, smaller pore diameter, higher porosity and redshift of the band gap. These properties were responsible for their improved photocatalytic activity, when tested for the photodegradation of organic dyes. It was found that 3 % Gd3+ substituted BF nanoparticles exhibited enhanced the photocatalytic activity of indigo carmine dye with a degradation ranging from 34 % to 69 %, while for Congo red dye the degradation varied from 37 % to 73 % under the visible light. Furthermore, bio‐sensing properties of BF materials were improved as detected by the uric acid using cyclic voltammogram technique.