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Nanosheets composed of stacked atomic layers exhibit unique magnetic, electrical, and electrochemical properties. Here, we report the effect of iron substitution on the structure and magnetism of nickel hydroxide, Ni(OH)2, nanosheets. Ni(OH)2 and iron-substituted Ni(OH)2 (5, 10, 20, and 50 atomic % Fe substitution) were synthesized using a rapid microwave-assisted hydrothermal process. Scanning and transmission electron microscopy show the materials are polycrystalline nanosheets that aggregate into micron-sized clusters. From X-ray diffraction characterization, iron substitutes into the α-Ni(OH)2 lattice up to 20 at. % substitution. The nanosheets exhibit different in-plane and through-plane domain sizes, and Fe substitution affects the nanocrystallite shape anisotropy. The magnetic response differs with Fe substitution: 0% and 5% Fe are ferromagnetic, while samples with 10% and 20% Fe are ferrimagnetic. The competing interactions between magnetization sublattices and the magnetic anisotropy due to the crystalline and shape anisotropy of the nanosheets lead to magnetization reversal at low temperatures. The correlation between higher coercivity and larger nanocrystalline size anisotropy with higher Fe % supports that magnetic anisotropy contributes to the observed ferrimagnetism. The interplay of morphology and magnetic response with Fe-substituted Ni(OH)2 nanosheets points to new ways to influence electron interactions in layered materials which has implications for batteries, catalysis, sensors, and electronics.