The average structure, local structure, and band structure of nanoparticles of photocatalyst Bi4TaO(8)Cl, an AurivilliusSillen layered material, has been studied by powder neutron Rietveld refinement, neutron pair distribution function technique, Raman scattering, and density functional theory calculations. A significant local structural deviation of nano-Bi4TaO(8)Cl was established in contrast to the local structure of bulk-Bi4TaO(8)Cl. Local structure was further supported by Raman scattering measurements. Through DFT calculations, we identify specific features in the electronic band structure that correlate lower secondary structural distortions in nano-Bi4TaO(8)Cl. Increased distortion of TaO6, decreased Ta-O-Ta bond angle, and increased octahedral tilt in the local structure of nano-Bi4TaO(8)Cl influence the band structure and the electron hole pair migration. Therefore, in addition to morphology and size, the local structure of a nanomaterial contributes to the photocatalytic performance. Trapping experiments confirm the role of superoxide radical in the photocatalysis mechanism of this material. Such studies help in developing new functional materials with better photocatalytic efficiency to address energy and environmental issues.