Abstract Al-doped zinc oxide (AZO)/Fe/AZO composite films were fabricated by a RF sputtering method. The effects of introducing of Fe layer into AZO film on the structural, optical, electrical and magnetic properties of the composite films were investigated. The results showed that these physical properties of the composite films depend strongly on the Fe layer thickness and heat-treatment temperature. The Hall coefficient is also closely dependent on the Fe layer thickness. With increasing the Fe layer thickness, carrier concentration increases while Hall mobility decreases. The results show that it is possible to produce a composite film material with high optical transmittance in the visible range, low resistivity and ferromagnetism at room temperature by introducing a magnetic metal thin layer into transparent and conductive films. The best electrical, optical and room-temperature ferromagnetic properties were achieved for the AZO/Fe/AZO composite films with a Fe layer thickness of 5 nm annealed at 400 °C for an hour.