Room temperature magnetoresistance (MR) under AC electric field of a composite of carbon nanotubes (CNT) and Fe nanoparticles dispersed in a base polymer of epoxy resin and amorphous carbon is reported. The films made in varying weight concentrations (1% to 3% of CNT and 1% to 5% of Fe) reveal MR dependence over the entire frequency (0- 1kHz) and amplitude range (0-3V). MR is found to increase with increase in either Fe or CNT concentration. The experiments reveal an enhanced MR as compared to the MR under a static electric field. On passing an alternating electric field through a CNT, the impedance increases due to the onset of the capacitive and inductive impedance, in addition to the already existing electrical resistance. The charge storage capacity of CNTs leads to the capacitive impedance. When electric field is applied parallel to the tube axis, electron flux along circumference is diverted into a helix current, similar to nanocoils. The Fe nanoparticles enhance the magnetic field concentration in the CNTs leading to an increased inductor like property of CNTs. The dynamics of the CNT-Fe system has been modeled using Maxwell's electromagnetic equations, with the Fe nanoparticles contributing to an additional current density in the form of spin polarized electrons. Hysteresis in MR is observed on sweeping the magnetic field. These highly tunable, flexible thin films can be used in room temperature magnetic field sensors and spintronic devices like magnetic random access memory (MRAM).© (2011) COPYRIGHT Society of Photo-Optical Instrumentation Engineers (SPIE). Downloading of the abstract is permitted for personal use only.