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Multiferroic epitaxial Bi‐Fe‐O thin films of different thicknesses (15–500 nm) were grown on SrTiO3(001) substrates by pulsed laser deposition under various oxygen partial pressures to investigate the microstructural evolution in the Bi‐Fe‐O system and its effect on misfit strain relaxation and on the magnetic properties of the films. Films grown at low oxygen partial pressure show the canted antiferromagnetic phase α‐Fe2O3embedded in a matrix of BiFeO3. The ferromagnetic phase, γ‐Fe2O3is found to precipitate inside the α‐Fe2O3grains. The formation of these phases changes the magnetic properties of the films and the misfit strain relaxation mechanism. The multiphase films exhibit both highly strained and fully relaxed BiFeO3regions in the same film. The magnetization in the multiphase Bi‐Fe‐O films is controlled by the presence of the γ‐Fe2O3phase rather than heteroepitaxial strain as it is the case in pure single phase BiFeO3. Also, our results show that this unique accommodation of misfit strain by the formation of α‐Fe2O3gives rise to significant enhancement of the piezo electric properties of BiFeO3.