We investigated a hematite α-Fe2O3/permalloy Ni80Fe20 bilayer film where the antiferromagnetic layer consisted of small hematite grains in the 2 to 16 nm range. A pronounced exchange bias effect occurred below the blocking temperature of 40 K. The magnitude of exchange bias was enhanced relative to reports for identical compounds in large grain, epitaxial films. However, the blocking temperature was dramatically reduced. As the Néel temperature of bulk α-Fe2O3 is known to be very high (860 K), we attribute the low-temperature onset of exchange bias to the well-known finite-size effect which suppresses the Morin transition for nanostructured hematite. Polarized neutron reflectometry was used to place an upper limit on the concentration and length scale of a layer of uncompensated moments at the antiferromagnetic interface. The data were found to be consistent with an induced magnetic region at the antiferromagnetic interface of 0.5–1.0 μB per Fe atom within a depth of 1–2 nm. The field dependence of the neutron spin-flip signal and spin asymmetry was analyzed in the biased state, and the first and second magnetic reversal were found to occur by asymmetric mechanisms. For the fully trained permalloy loop, reversal occurred symmetrically at both coercive fields by an in-plane spin rotation of ferromagnetic domains.