Recent experiments have reported that ferroelectric nanoparticles have drastic effects on nematic liquid crystals—increasing the isotropic-nematic transition temperature by about 5 K, and greatly increasing the sensitivity to applied electric fields. To understand these effects, we develop a theory for the statistical mechanics of ferroelectric nanoparticles in liquid crystals. This theory predicts the enhancements of liquid-crystal properties, in good agreement with experiments. These predictions apply even when electrostatic interactions are partially screened by moderate concentrations of ions.