A facile, economical, and one-step hydrothermal method was used to prepare highly luminescent nitrogen-doped carbon quantum dots (N-CQDs) with chitosan as both carbon and nitrogen sources. The as-prepared N-CQDs have an average size of 2 nm and exhibit excitation wavelength-dependent fluorescence with a maximum excitation and emission at 330 and 410 nm, respectively. Furthermore, due to the effective quenching effect of Fe ions, the prepared N-CQDs can be used as a fluorescent sensor for Fe ion-sensitive detection with a detection limit of 0.15 μM. The selectivity experiments revealed that the fluorescent sensor is specific to Fe even with interference by high concentrations of other metal ions. Most importantly, the N-CQD-based Fe ion sensor can be successfully applied to the determination of Fe in real water samples. With excellent sensitivity and selectivity, such stable and cheap carbon materials are potentially suitable for the monitoring of Fe in environmental application.