In recent experiments Tada et al. have shown that TiO2 surfaces modified with iron oxide display visible light photocatalytic activity. This paper presents first principles simulations of iron oxide clusters adsorbed at the rutile TiO2 (110) surface to elucidate the origin of the visible light photocatalytic activity of iron oxide modified TiO2. Small iron oxide clusters adsorb at rutile (110) surface and their presence shifts the valence band so that the band gap of the composite is narrowed towards the visible, thus confirming the origin of the visible light activity of this composite material. The presence of iron oxide at the TiO2 surface leads to charge separation, which is the origin of enhanced photocatalytic efficiency, consistent with experimental photoluminesence and photocurrent data. Surface modification of a metal oxide is thus an interesting route in the development of visible light photocatalytic materials.