FeCl3 reacts with NaOH to form Fe(OH)3 and NaCl. In other words, iron(III) chloride reacts with sodium hydroxide to form iron(III) hydroxide and sodium chloride.
The balanced equation for the reaction between FeCl3 and NaOH is FeCl3 + 3NaOH -> Fe(OH)3 + 3NaCl. Since iron(III) chloride and sodium chloride are soluble in water, but not iron(III) hydroxide, the reaction causes a solid to be precipitated. As iron(III) hydroxide is brown, a brown precipitate is formed. Hence, this is known as a precipitation reaction.
A similar reaction occurs with iron(II) chloride and sodium hydroxide. The insoluble iron(II) hydroxide resulting from the reaction is green. Hence, sodium hydroxide can be used to distinguish iron(II) chloride from iron(III) chloride.