Despite the important role of ion-exchange membranes (IEMs) in reverse electrodialysis (RED) systems, the current absence of proper ion-exchange membranes delays the sustainable development of the RED process for salinity gradient power generation. This research presents the preparation of a new type of organic–inorganic nanocomposite cation exchange membrane and its performance characteristics. The combination of functionalized iron (III) oxide as an inorganic filler with the sulfonated poly (2,6-dimethyl-1,4-phenylene oxide) (sPPO) polymer matrix proved to have great potential for power generation by RED. The results showed that an optimal amount of (0.5–0.7 wt%) enhanced the key electrochemical properties of the ion-exchange membranes including a permselectivity up to 87.65% and an area resistance of 0.87 Ω cm2. The nanocomposite membrane containing 0.7 wt% achieved a maximum power density (amount of power per unit membrane area) of 1.3 W m−2, which is relatively higher than that of the commercially available CSO (SelemionTM, Japan) membranes. The goal of the present work is to maximize the salinity gradient power generation by developing RED-specific nanocomposite IEMs. The results show the potential of the new design of the nanocomposite IEMs for viable energy generation by RED.