Iron(III) chloride indeed hydrolyses in water, or to be precise, $\ce{Fe^3+}$ does assuring acidic medium.
Hydrolysis isn't completely suppressed even in strongly acidic solutions.
In the absence of other factors, what happens exactly depends on the concentration of chloride and temperature.
In diluted cold solution a typical formation of metal aqua ions takes place:
$$
\begin{align}
\ce{FeCl3 + 4 H2O &<=> [Fe(H2O)4Cl2]+ + Cl-}\tag{R1.1}\\
\ce{[Fe(H2O)4Cl2]+ + H2O &<=> [Fe(H2O)5Cl]^2+ + Cl-} &\quad \mathrm{p}K_\mathrm{a} &= 0.30\tag{R1.2}\\
\ce{[Fe(H2O)5Cl]^2+ + H2O &<=> [Fe(H2O)6]^3+ + Cl-} &\quad \mathrm{p}K_\mathrm{a} &= 1.48\tag{R1.3}\\
\ce{[Fe(H2O)5Cl]^2+ + H2O &<=> [Fe(H2O)4(OH)Cl]+ + H3O+} &\quad \mathrm{p}K_\mathrm{a} &= 3.05\tag{R1.4}\\
\end{align}
$$
In concentrated cold solution aquacomplex is also accompanied by tetrachloroferrate(III):
$$\ce{2 FeCl3 + 4 H2O <=> [Fe(H2O)4Cl2)]+ + [FeCl4]-}\tag{R2}$$
In boiling-hot solution iron(III) chloride decomposes to hydroxochloride
$$\ce{FeCl3 + 2 H2O ->[Δ] Fe(OH)2Cl(s) + 2 HCl}\tag{R3}$$
which is partially hydrolyzed further to colloidal iron(III) hydroxide ($\ce{Fe(OH)2Cl}$ is still more soluble than $\ce{Fe(OH)3}$).
Finally treatment with steam results in iron(III) oxide:
$$\ce{2 FeCl3 + 3 H2O ->[\pu{350 - 500 °C}] Fe2O3 + 6 HCl}\tag{R4}$$
Reactions were adopted from [1, pp. 420–421].
References
- R. A. Lidin, V. A. Molochko, and L. L. Andreeva, Reactivity of Inorganic Substances, 3rd ed.; Khimia: Moscow, 2000. (in Russian)
